^ 


IIP 

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Mercantile   credits 
and  collecti~onsT 


Southern  Branch 
of  the 

University  of  California 

Los  Angeles 

Form  L-1 

Mr 


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LOS  iS.^GsiLES.  CAUR, 


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IIP 

5566 

JlS^Zin Meyer -^ 


Mercantile  credits 
and  collections. 


Southern  Branch 
of  the 

University  of  California 

Los  Angeles 

Form  L-1 


This  book  is  DUE  on  the  last  date  stamped  below. 


MAY  2  7 


MAR  7      1929 


II 


OCT  ^    \b^ 

.DEC  16 1959 

1:  JAN  7   ^^'^ 


3m-8,'20 


MERCANTILE  CREDITS  AND 
COLLECTIONS 


•The 


THE  MACMILLAN  COMPANY 

NEW    YORK    •    BOSTON    •    CHICAGO    •    DALLAS 
ATLANTA    •    SAN    FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON    ■  BOMBAY   •  CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


MERCANTILE  CREDITS 
AND  COLLECTIONS 


BY 

CHARLES  A.  MEYER 


Npuj  fork 

THE  MACMILLAN  COMPANY 

1919 

All  rights  reserved 


COPTRIQHT,    1919 

By  the  MACMILLAN  COMPANY 
Set  up  and  electrotyped.    Published  July,  1919 


H 


>* 

^  PREFACE 

(9 

In  this  volume  the  author  has  attempted  to  discuss 

"^  one  branch  of  the  various  classes  of  credit,  that  is, 
Ipv  mercantile  credit,  and  the  methods  to  be  pursued  in 
^  '  making  mercantile  collections,  and  has  taken  a  view 
OO  of  the  collection  feature  of  mercantile  credits  from  a 
''^  practical  standpoint,  based  on  experience,  and  without 
^  strict  regard  to  the  theoretical  appUcation  or  analysis 
V>      of  all  phases  of  credit. 

"^  There   are    two    general    classes    of    credit — public 

f)  credit  and  private  credit — but  political  economists 
usually  divide  credit  into  five  classes:  mercantile,  per- 
sonal, banking,  public  and  investment  credit.  This 
volume  makes  reference  to  mercantile  credit  only,  no 
attempt  being  made  to  discuss  the  other  branches  of 
credit  classes. 

The  suggestions  offered  are  based  upon  practical 
experience,  and  the  book  is  intended  for  credit  men  and 
for  those  interested  in  the  subject  of  mercantile  credit 
generally  from  a  practical  business  standpoint. 

Chas.  a.  Meyer. 
Chicago,  111. 
October,  1918 


CONTENTS 


PAGE 

Introductory ix 


PART  I 
MERCANTILE  CREDIT 

Chapter  I 

The  Credit  System  and  the  Fundamental  Principles  of  Credit 

Greater  Factor  than  Money  in  Development  of  World — Sup- 
plying the  Place  of  Money — Function  of  Banks  in  Liqui- 
dating Credit — Open  Book  Account  System — Conditional 
Sales  Contracts  as  Credit  Instruments — Promissory  Notes 
— Trade  Acceptances — Character  and  Honesty — Recip- 
rocal Faith — Business  Abihty — Abihty  to  Pay — Practical 
Business  Experience — General  Reputation — Sound  Busi- 
ness Judgment 3 

Chapter  II 
Functions  of  the  Credit  Man 

Position  of  Trust  and  Responsibility — Safeguarding  Property 
and  Investments  of  Employer — Avoiding  Losses  by  Col- 
lecting and  Weighing  Facts — Constructive  Methods — 
Tra'ning  Salesmen — Increasing  Sales  by  His  Own  Efforts — 
Business  Advisor  of  Customers — Getting  Confidence  of 
Customers — Discouraging  Dishonesty 12 


Vm  CONTENTS 

Chapter  III 

Sources  of  Information,  and  Forms,  Suggested,  to  be  Obtained 
from  Salesman 

PAGE 

Teaching  Salesmen  in  the  Art  of  Obtaining  Credit  Information 
— ^Advantages  of  Obtaining  Complete  Credit  Reports  from 
Salesmen — Salesmen's  Form  upon  which  to  Report  Mer- 
chants, Fully  Analyzed — Salesmen's  Report  for  Manufac- 
turers— Salesmen's  Report  for  Farmers — Salesmen's  Re- 
port for  Oil  Producers — Salesmen's  Report  for  Metal 
Mining  Companies 19 

Chapter  IV 

Sources  of  Information,  and  Forms,  Suggested,  Exclusive  of 
Those  from  Salesmen 

Advantage  of  Obtaining  Signed  Statement  Direct  from  Cus- 
tomer— Advantage  of  Using  Special  Blanks  with  Self-con- 
tained Envelope — Form  to  be  Used  in  Obtaining  State- 
ments Direct  from  Customers — Form  to  be  Used  in  Seeking 
Information  from  Banks — Form  to  be  Used  in  Seeking 
Information  from  Other  Merchants — Obtaining  Reports 
from  Mercantile  Agencies — Obtaining  Information  from 
Attorneys 39 

Chapter  V 

Method  of  Compiling  Information  and  Final  Disposition  of 

Orders 

Filing  Reports  in  Credit  Folders — Keeping  Reports  in  Date 
Order — Revising  Credit  Files  Periodically — How  to  Fix 
and  Change  Credit  Limits — Card  System  on  Credit  Limits 
— Assistance  of  Bookkeeper — Record  of  Declined  Credits 
— Record  of  Approved  but  Unshipped  Orders — Letters  of 
Acceptance — Forming  Good  Impressions  First — Sending 


CONTENTS  IX 

PAGE 

Copies  of  Acceptances  to  Salesmen — Approving  Orders — 
Temporary  Approval  in  the  Interest  of  Service — Phraseol- 
ogy of  Letters  Declining  Orders — Keeping  Records  of  De- 
clined Orders 46 


Chapter  VI 
Co-operation  and  Diplomacy 

Basis  of  Mutuality — How  to  Win  the  Confidence  of  Salesmen, 
in  Various  Ways — Lining  up  the  Customer  Fully  Explained 
— Advantages  of  Co-operation — Co-operation  with  Banks 
— Removing  Prejudices  of  Other  Merchants  and  Com- 
petitors— Co-operation  at  Creditors'  Meetings — Problem 
of  Declining  an  Order — Profitable  to  Have  Good  Will  of 
Customer  even  if  Credit  is  Refused — Style  of  Letters  to  be 
Used  in  Turning  Down  Orders — Essential  to  Keep  Good 
Will  of  Salesmen  even  when  Orders  from  Poor  Risks  are 
Declined — Benefit  of  Credit  Man  Visiting  the  Territory . .     52 

Chapter  VII 

Converting  Doubtful  Orders  into  Good  Ones,   and  the  Use  of 

Guarantees 

Diplomatic  Use  of  Suggestion — Getting  the  Cash  by  Tact — 
How  to  Approach  a  Buyer  for  Security — Securing  the  Per- 
sonal Guarantee  of  Individuals  for  Corporate  Purchases — 
Undertaking  of  Relatives — Backing  of  Landlord  to  Tenant 
— Other  Personal  Relations — Form  of  Guarantee  Recom- 
mended by  National  Association  of  Credit  Men — Must  be 
in  Legally  Binding  Form — Consideration  Must  Be  Ample 
— Guarantees  on  New  and  on  Old  Accounts  Require  Dif- 
ferent Considerations — Method  of  Avoiding  All  Question 
of  Consideration  for  Guarantee  on  Obligation  Already  Ow- 
ing— Form  to  be  Used  for  Guarantee  on  Debt  Already 
Owing 66 


X  CONTENTS 

Chapter  VIII 
How  to  Read  a  Financial  Statement 

PAGE 

Close  Analysis  Necessary — Age  of  Individuals  a  Factor — Es- 
tablished versus  New  Corporations — Segregating  Quick 
Assets  and  Quick  Liabilities — Contingent  Liabilities  a  Con- 
sideration— Proportion  of  Assets  to  Liabilities  Discussed — 
Bank  Loans  a  Large  Factor — Loans  from  Others  than 
Banks — Intangible  Assets — Conservatives  versus  Specu- 
la,tors — Market  for  Product — General  Prosperity  of  the 
Community — Fire,  Life,  Workmen's  Compensation,  and 
Public  Liability  Insurance — Determining  the  Turnover. .     75 

Chapter  IX 

Conditional  Sales  Contracts 

Definition  of — Their  Effect,  and  Advantages  to  the  Buyer — 
General  Exceptions  to  Their  Validity — When  they  may  be 
Used  to  Advantage — Distinction  between  Recording  and 
Filing — Criminal  Liability  for  Disposing  of  Property  be- 
fore Payment  Discussed — Remedies  on  Default  of  Buyer — 
Election  of  Remedies — Tendency  of  Courts  to  Protect 
Buyer — Training  Salesmen  to  be  Careful — Essential  to 
Know  if  Individual  can  Bind  Corporate  Buyer — Form  of 
Agreement  Must  Be  so  Full  and  Complete  as  to  Cover  all 
Circumstances 82 


Chapter  X 

Trade  Acceptances 

Overcoming  Prejudices — Definition  of — Function  of,  compared 
with  Promissory  Notes — Advantages  to  Seller — Advan- 
tages to  Banker — Quickens  the  Turnover — Advantages  to 
the  Buyer — Reducing  Losses 89 


CONTENTS  XI 

Chapter  XI 

General    Knowledae    of    Law,    and    Information    on    Credit 

Conditions 

FAGB 

Knowledge  of  Certain  Specified  Subjects  Helpful — Practical 
Operation  of  the  Law — Guiding  Lawyers  by  Definite  In- 
structions— Knowledge  of  Implied  Warranties — Contingent 
Damages — Redemption  Laws — Sources  of  General  Legal 
Information — Factors  that  Disturb  Credits — Sources  of 
Information  on  Financial  Conditions — Study  of  Crop  Con- 
ditions— Sources  of  Information  on  Crop  Conditions — In- 
formation on  Trade  and  Industrial  Conditions — Informa- 
tion on  Mining  and  Oil  Industries — General  Local  Con- 
ditions       97 

PART  II 

MERCANTILE  COLLECTIONS 

Chapter  I 

Functions  of  a  Good  Collector 

Getting  the  Money  when  Due — Making  Few  Enemies — Con- 
structive Methods — Careful  Analyses — Getting  the  Debt- 
or's Confidence — Granting  Extensions  only  for  Adequate 
Consideration — Adjusting  Complaints — Partial  Collections 
on  Disputed  Claims^Monthly  Statements — Advantages 
of  Itemizing — Notices  of  Maturity  of  Notes — Contract 
Payments — Special  Letter  Notices — Draft  against  Bill  of 
Lading — Trade  Acceptance  Notice 107 

Chapter  II 

Follow-up  System,  and  Collection  Letters 

System  Necessary  to  Persistency — Holding  Good  Will  of  Debt- 
ors— Classifying  Monthly  Statements — Follow-up  Dates 
in  Files — Card  System — Collection   Letters — Special  List 


XU  CONTENTS 

PAGE 

of  Old  Accounts — Maturities  of  Notes — Avoiding  Form 
Letters — Delivering  Your  Message — Attracting  Attention 
in  the  Opening  Statement — Effective  Letters — Using  Pre- 
texts— Positive  Attitude — Use  of  Suggestion — Distinctive 
Letters 114 

Chapter  III 

Unusual,  Unique  and  Resourceful  Methods 

Foresight — The  Principle  of  Security — When  to  Convert  Open 
Book  Accounts  into  Promissory  Notes — Dealing  with  Con- 
tentious Debtors — How  to  Collect  Attorneys'  Fees  from 
the  Debtor — Fonn  of  Promissory  Note  Recommended — 
Printed  Waiver  of  Protest  on  Notes — Collateral  Notes — 
Unusual  Forms  of  Collateral  Security  Recommended — 
Cutting  off  Debtor's  Equity  of  Redemption  by  Using 
Special  Form  of  Collateral  Note  Recommended — How  to 
Use  Open  Book  Accounts  of  Debtor  as  Security — Form  of 
Assignment  of  Open  Book  Accounts — Procedure  of  Using 
Notes  Due  Debtor  as  Security — When  and  How  to  Get 
Postdated  Checks — Procedure  of  Collecting  Checks  Dis- 
honored because  of  Insufficient  Funds — Effective  Method 
of  Collecting  Small  Past  Due  Accounts — Form  of  Blank 
Check  and  Stub  Recommended — Charging  Interest — Ob- 
taining Individual  Guarantee  of  Payment — Use  of  Regis- 
tered Mail— Special  Delivery  Letters — Collecting  by  Tele- 
graph— Creating  Offsets — Reciprocity — How  to  Collect 
from  Precarious  and  Contrary  Debtors — Tracing  the  Lost 
Ones — Rule  to  Follow  on  Default  of  Payment 121 

Chapter  IV 

Commercial   Arbitration — Adjustment  Bureaus — Collection 
Agencies 

Advantages  of  Arbitration — Procedure  Followed  in  Settlement 
of  Arbitrated  Controversies,  Including  Agreement  for 
Entry  of  Judgment — Suggesting  Arbitration  to  Attorneys 


CONTENTS  Xlll 

PAGE 

— Arbitration  Committees  of  the  Chicago  Association  of 
Commerce — Outline  of  Aims  and  Objects — Controlling 
Receivers — Appraisers  and  Trustees — Prosecutions — Com- 
petent Administration  of  Estates — Methods  of  Procedure 
— Creditors'  Committees — Results  Accomplished — Time 
to  Place  Accounts — Selecting  the  Agency — Keeping  Rec- 
ords of  Results — Getting  Accurate  Reports  of  Status  of 
Claims — How  to  Properly  Place  Claims  for  Collection. . . .  141 

Chapter  V 

Bankruptcy 

Knowledge  of  Practical  Operation  of  Law — Theory  of  the  Law 
— Correcting  Mistaken  Practices — Advantages  of  Law  to 
Creditors — Its  Primary  Object — Care  in  Filing  Creditors' 
Claims — Voting  for  a  Trustee — Kind  of  Trustee  to  Select 
— Functions  of  a  Trustee — Analysis  of  Preferences — Diffi- 
culties Encountered  in  Recovering  on  Preferences  to  Es- 
tate— Status  of  Conditional  Sales  in  Bankruptcy  Court. .   152 

Chapter  VI 

Your  Own    Collection   Agency.     Organization — Collection 
Letters — Methods 

Plan  Fully  Outlined — No  Expense  Involved — Greater  Effi- 
ciency in  Collections — Maintaining  Your  Own  Control  of 
Obligations — Forms  of  Articles  of  Incorporation — Suitable 
Name — Proper  Address — Avoiding  Special  Fee  in  States 
Where  Special  License  is  Required  from  a  Collection  Agency 
— Designing  the  Proper  Letterhead — Demands — Threats 
— Persuasive  Letters — Collecting  in  Installments — Adver- 
tising Obligations  for  Sale — Posting  Notices  in  Debtor's 
Neighborhood — Offering  Claim  to  Debtor's  Bank — Use  of 
the  Mourning  Envelope — Placing  Claims  with  Attorneys 
for  a  Suit — Examining  Judgment  Debtors — Dealing  with 
Foreign  Attorneys 164 


XIV  CONTENTS 

PART  in 

UNITED  STATES  BANKRUPTCY  LAW 

Chapter  I 

Definitions 

PAGE 

Meaning  of  Words  and  Phrases 179 

Chapter  II 

Creation  of  Courts  of  Bankruptcy  and  Their  Jurisdiction 

Courts  and  Jurisdiction 183 

Chapter  III 

Bankrupts 

Acts  of  Bankruptcy — Who  May  Become  Bankrupts — Partners 
— Exemption  of  Bankrupts — Duties  of  Bankrupts — Death 
or  Insanity  of  Bankrupts — Protection  and  Detention  of 
Bankrupts — Extradition  of  Bankrupts — Suits  by  and 
against  Bankrupts — Compositions,  When  Confirmed — 
Compositions,  When  Set  Aside — Discharges,  When  Granted 
— Discharges,  When  Revoked — Co-debtors  of  Bankrupts — 
Debts  not  Affected  by  Discharge 187 

Chapter  IV 

Courts  and  Procedure  Therein 

Process,  Pleadings,  and  Adjudications — Jury  Trials — Oaths, 
Affirmations — Evidence — Reference  of  Cases  After  Ad- 
judication— Jurisdiction  of  United  States  and  State  Courts 
— Jurisdiction  of  Ai)pollate  Courts — Appeals  and  Writs  of 
Error — Arbitration  of  Controversies — Compromises — Des- 
ignation of  Newspapers — Offenses — Rules,  Forms,  and 
Orders — Computation  of  Time — Transfer  of  Cases 202 


CONTENTS  XV 

Chapter  V 

Officers,  Their  Duties  and  Compensation 

PAGE 

Creation  of  Two  Offices — Appointment,  Removal  and  Dis- 
tricts of  Referees — Qualifications  of  Referees —  Oath  of 
Office  of  Referees — Number  of  Referees — Jurisdiction  of 
Referees — Duties  of  Referees — Compensation  of  Referees 
— Contempts  before  Referees — Records  of  Referees — Ref- 
eree's Absence  or  Disability — Appointment  of  Trustees — 
Qualifications  of  Trustees — Death  or  Removal  of  Trustees 
— Duties  of  Trustees — Compensation  of  Trustees — Ac- 
counts and  Papers  of  Trustees — Bonds  of  Referees  and 
Trustees — Duties  of  Clerks — Compensation  of  Clerks  and 
Marshals — Duties  of  Attorney  General — Statistics  of 
Bankruptcy  Proceedings 214 

Chapter  VI 
Creditors 

Meetings  of  Creditors — Voters  at  Meetings  of  Creditors — Proof 
and  Allowance  of  Claim — Notice  to  Creditors — Who  May 
File  and  Dismiss  Petitions — Preferred  Creditors 231 

Chapter  VII 
Estates 

Depositories  for  Money — Expenses  of  Administering  Estates — 
Debts  Which  May  Be  Proved — Debts  Which  Have  Prior- 
ity— Declarations  and  Payments  of  Dividends — Unclaimed 
Dividends — Liens — Set-offs  and  Counterclaims — Posses- 
sion of  Property — Title  to  Property — Clerks  to  Keep  In- 
dexes— Extra  Fees  Forbidden 241 


XVI  CONTENTS 

Appendix 

Requirements  of  Each  State  as  to  Conditional  Sales  Contracts 

PAGE 

Alabama 255 

Arizona 255 

Arkansas 256 

California 256 

Colorado 256 

Connecticut 256 

Delaware 257 

District  of  Columbia 257 

Florida 257 

Georgia 258 

Idaho 258 

Illinois 259 

Indiana 259 

Iowa 259 

Kansas 260 

Kentucky 260 

Louisiana 260 

Maine 261 

Maryland 261 

Massachusetts 261 

Michigan 262 

Minnesota 262 

Mississippi 262 

Missouri 263 

Montana 264 

Nebraska 264 

Nevada 264 

New  Hampshire 265 

New  Jersey 265 

New  Mexico 265 

New  York 266 

North  Carolina 266 

North  Dakota 266 

Ohio 267 


CONTENTS  XVU 

PAGE 

Oklahoma 267 

Oregon 267 

Pennsylvania 268 

Rhode  Island 268 

South  Carolina 268 

South  Dakota 269 

Tennessee 269 

Texas 269 

Utah 270 

Vermont 270 

Virginia 270 

Washington 271 

West  Virginia 271 

Wisconsin 271 

Wyommg 272 

Forms  of  Conditional  Sales  Contracts 

Short  Form,  Conditional  Sale  Contract 273 

Simple  Form  of  Conditional  Sale 274 

Pennsylvania  Lease  Form  of  Contract 275 

Machinery  Form  of  Conditional  Sale  Contract 277 

Form  of  Contract  Used  in  Selling  Engines 281 

Short  Order  Form,  Conditional  Sale  Contract,  for  Salesmen. .  289 

Conditional  Contract  of  Sale 291 


INTRODUCTORY 

Most  credit  men  and  collectors  must  obtain  their 
knowledge  through  years  of  practical  business  experi- 
ence, as  most  books  heretofore  published  on  the  subject 
or  credits  and  collections  are  largely  theoretical,  well 
written  by  authorities  on  political  economy,  but  not 
based  upon  actual  experience  in  that  line  of  work. 
For  this  reason  it  seems  desirable  to  treat  mercantile 
credits  and  collections  from  actual  experience  and  an 
attempt  has  been  made  to  do  this  in  this  volume. 

The  author  has  been  brief  and  has  kept  from  going 
into  exhaustive  detail  as  much  as  possible,  so  that  a 
broad  vision  of  the  subject  may  be  obtained  without 
finding  the  reading  of  the  subject-matter  burdensome. 
It  is  the  purpose  in  compiling  the  work  to  influence  the 
reader  to  use  constructive  thought  in  connection  with 
what  is  herein  stated. 

After  understanding  and  absorbing  the  fundamental 
principles  of  credit  and  the  function  of  credit  grantors, 
stress  is  laid  upon  the  obtaining  of  reliable  and  accurate 
information,  followed  by  the  use  of  calm  and  deliberate 
judgment,  and  if  this  general  procedure  is  followed, 
regardless  of  the  policy  of  a  business  institution,  the 
losses  will  be  less  by  a  study  and  analysis  of  the  appli- 


XX  INTRODUCTORY 

cation  of  the  methods  or  principles  outhned  in  the  first 
part  of  the  book  on  mercantile  credits;  and  if  the  judg- 
ment of  the  reader  has  failed  him  in  the  granting  of 
credit  or  subsequent  unforeseen  difficulties  have  later 
arisen,  an  exhaustive  search  of  the  existing  facts, 
coupled  with  the  same  careful  analysis  and  deliberate 
application  of  the  principles  or  suggestions  in  Part  II 
on  mercantile  collections  will  still  enable  him  to  avoid 
losses  that  would  otherwise  occur. 


PART  I 
MERCANTILE  CREDIT 


MERCANTILE   CREDITS   AND 
COLLECTIONS 

CHAPTER  I 

THE  CREDIT  SYSTEM  AND  THE  FUNDAMENTAL  PRINCIPLES 
OF   CREDIT 

Credit  has  been  a  greater  factor  in  the  development 
and  progress  of  the  world  than  money.  Had  the  de- 
velopment and  progress  of  the  world  been  limited  to 
the  use  of  money  only  this  generation  would  now  be 
in  a  state  of  development  that  existed  centuries  ago. 
Credit  has  stimulated  labor,  industry  and  commerce. 
A  sUght  disturbance  in  the  credit  system  is  felt  in 
every  line  of  business,  and  its  ramifications  are  such 
and  its  operations  so  internationally  extensive  that 
this  disturbance  reaches  foreign  business  as  well  as 
domestic.  Present-day  commercial  Hfe  would  be  de- 
moralized if  credit  should  cease. 

Property  is  represented  by  hard  money,  which  is  the 
standard  or  measure  of  value,  and  hard  money  is  repre- 
sented equally  as  much  by  credit,  and  it  so  thoroughly 
supplies  the  place  of  money  that  in  most  commercial 
transactions  the  actual  transfer  of  money  from  one  party 
in  a  transaction  to  the  other  rarely  ever  takes  place. 

3 


4  MERCANTILE    CREDITS   AND   COLLECTIONS 

The  banking  system  is  probably  the  most  highly  de- 
veloped and  best  regulated  branch  of  the  credit  system. 
Practically  all  business  operations  are  Uquidated  by 
the  credit  system  through  the  medium  of  the  banks,  and 
to-day  they  are  as  much  a  clearing  house  of  credit  as 
they  are  a  clearing  house  of  money.  However,  as  the 
subject  to  be  dealt  with  in  this  book  relates  to  mer- 
cantile credit  only,  no  discussion  of  the  system  of 
banking  credits  will  be  undertaken. 

Much  of  the  business  of  this  country  is  to-day  done 
on  credit  through  what  is  known  as  the  Open  Book 
Account  System.  Under  this  system  a  buyer  places 
an  order  for  merchandise,  either  verbally  or  in  writing, 
which  the  seller  fills,  relying  upon  the  promise  and 
ability  of  the  buyer  to  pay  for  the  property  at  some 
future  date.  Often  the  promise  to  pay  is  merely  im- 
plied. Orders  are  placed  most  generally  without  any 
definite  promise  to  pay.  The  transaction  is  largely 
one  of  faith,  supplemented  by  information  the  seller 
has  as  to  the  character,  reputation,  financial  standing 
and  abiUty  of  the  buyer  to  pay. 

Where  salesmen  are  employed,  the  buyer's  written 
order  is  usually  obtained,  and  the  terms  of  sale  are 
shown  on  the  order  and  a  copy  of  the  signed  order  is 
left  with  the  buyer.  If  the  character  of  the  business 
does  not  make  it  practical  to  obtain  written  orders,  or 
when  a  written  order  is  received  from  a  buyer  by  mail, 
the  order  should  be  acknowledged,  so  that  there  is  no 


FUNDAMENTAL   PRINCIPLES  5 

misunderstanding  as  to  what  is  to  be  shipped  and  in 
order  that  the  buyer's  attention  may  be  called  to  any 
discrepancy.  A  shipping  ticket,  or  a  charge  ticket,  is 
then  made  up,  from  which  the  goods  are  shipped,  and 
an  invoice  is  mailed  to  the  customer  and  on  the  first 
of  the  month  a  statement  of  account  is  rendered.  The 
buyer's  duty  is  to  check  over  the  statement  or  bill, 
and  if  correct  pay  the  amount  shown,  which  is  usually 
by  check  or  draft.  It  is  a  remarkable  tribute  to  the  good 
faith  of  human  nature  and  behef  in  our  fellow  being 
that  there  are  not  more  losses  in  business  under  this 
loose  system  of  open  book  account  credits. 

In  some  cases  merchandise  is  sold  under  what  is 
known  as  the  Conditional  Sales  Contract.  This  enables 
the  seller  to  retain  title  to  the  goods  furnished  until 
the  purchase  price  has  been  paid  by  the  buyer.  Pianos, 
victrolas,  machinery,  farm  implements,  wagons  and 
buggies,  automobiles,  sewing  machines,  and  most  me- 
chanical devices  sold  on  the  installment  plan  are  sold 
under  the  Conditional  Sales  Contract.  Sellers  of  this 
class  of  merchandise  usually  require  a  cash  payment 
with  the  order  large  enough  to  cover  the  wear  and  tear 
and  depreciation  in  case  they  are  compelled  to  take 
back  the  property  because  of  default  on  the  part  of  the 
buyer.  A  complete  outline  of  the  method  of  making 
sales  under  conditional  sales  contracts  will  be  later 
outlined  in  a  separate  chapter. 

In  money  transactions  the  extensions  of  credit  is 


b  MERCANTILE   CREDITS   AND    COLLECTIONS 

usually  represented  by  a  promissory  note,  either  se- 
cured or  unsecured.  The  security  may  be  collateral, 
such  as  stocks,  bonds  or  other  evidence  of  indebted- 
ness, or  may  be  in  the  form  of  a  mortgage  on  real  estate 
or  personal  property.  For  practical  purposes,  however, 
a  distinction  should  be  made  in  mercantile  transactions 
between  secured  and  unsecured  notes,  in  that  an  un- 
secured note  really  represents  credit  based  wholly  upon 
the  integrity  and  ability  of  the  maker  to  pay,  whereas 
a  secured  note  is  merely  an  evidence  of  indebtedness  in 
which  the  ability,  and  frequently  the  integrity  of  the 
maker  are  not  much  of  a  factor,  the  holder  of  the  paper 
relying  upon  the  real  estate  or  collateral  pledged  as 
assurance  of  ultimate  payment,  almost  wholly  regard- 
less of  the  ability  of  the  maker  to  pay  the  indebted- 
ness from  the  proceeds  or  realization  of  trading  in  other 
assets. 

Another  instrument  of  mercantile  credit  is  the  trade 
acceptance.  The  most  important  function  of  the  trade 
acceptance  is  to  liquify  open  book  accounts  and  make 
them  available  for  discount  at  banks.  As  distinguished 
from  a  promissory  note,  which  is  a  '^promise  to  pay," 
a  trade  acceptance  is  an  ''order  to  pay"  and  is  based 
entirely  upon  current  transactions.  The  use  of  such 
instruments  in  this  country  is  comparatively  new  and  a 
separate  chapter  will  be  devoted  to  the  subject. 

Many  contingencies  often  prevent  the  buyer  from 
carrying  out  his  obligation,  and  the  following  chapters 


FUNDAMENTAL   PRINCIPLES  7 

point  out  the  dangers,  outline  the  methods  and  sug- 
gest some  remedies  for  preventing  losses  which  fre- 
quently could  have  been  prevented  if  the  seller  had 
handled  the  situation  properly. 

One  of  the  first  requisites  a  buyer  must  have  is  char- 
acter and  honesty.  It  is  often  dangerous  to  extend 
credit  to  one  who  has  all  the  other  necessary  requisites 
to  enable  him  to  pay;  in  fact,  credit  men  must  always 
be  on  the  alert  to  prevent  their  employers  from  being 
defrauded  by  buyers  who  have  the  ability  to  pay  but, 
lacking  character  and  honesty,  try  to  make  it  profitable 
to  themselves  by  avoiding  wherever  possible  the  pay- 
ment of  their  just  debts.  In  a  retail  trade,  for  instance, 
much  of  the  credit  that  is  extended  to  buyers,  particu- 
larly covering  the  necessities  of  life,  is  extended  solely 
upon  the  character  and  honesty  of  the  buyer. 

Another  fundamental  attribute  of  credit  is  faith — 
faith  on  the  part  of  the  seller  that  the  buyer  can  and  will 
carry  out  his  obligation  with  a  reasonable  degree  of 
promptness  and  certainty;  and  faith  upon  the  part  of 
the  buyer  that  the  seller  can  and  will  deliver  what  he 
has  contracted  to  deliver  or  agreed  to  deliver,  within 
the  time,  and  of  a  quality,  agreed  upon.  This  faith 
upon  the  part  of  the  seller  must  extend  further  than  a 
mere  belief  that  the  buyer  can  meet  his  obligations.  It 
is  the  duty  of  the  credit  man  to  ascertain  the  facts 
that  will  make  this  faith  tangible.  The  seller  must 
have  faith,  not  only  in  the  character  and  honesty  of  the 


8  MERCANTILE   CREDITS   AND    COLLECTIONS 

buyer,  but  in  the  business  in  which  the  buyer  is  engaged, 
and  in  his  abihty,  experience  and  judgment.  There  are 
various  sources  through  which  this  information  can  be 
obtained,  which  will  be  outlined  in  a  separate  chapter. 

Ability  of  the  buyer  to  pay  is  dependent  upon  many 
different  factors,  but  most  usually  upon  his  solvency 
and  resourcefulness.  A  resourceful  debtor  frequently 
extracts  himself  from  facing  bankruptcy  by  obtaining 
an  extension  from  his  creditors,  which  is  usually  granted 
if  they  have  faith  in  the  continued  profitable  operation 
of  the  business  and  eventual  ability  of  the  debtor  to 
pay  his  obligations.  To  be  what  is  commonly  known 
as  an  "able  business  man"  is,  however,  not  sufficient. 
The  ability  of  the  buyer  must  be  of  a  character  such 
only  as  is  developed  by  long  experience  in  the  particular 
line  of  business  undertaken.  The  ability  of  a  debtor 
to  pay,  also,  frequently  depends  upon  whether  or  not 
he  has  himself  extended  credit  judicially  and  whether 
or  not  he  can  in  turn  collect  from  his  debtors.  His 
ability  to  pay  may  depend  upon  his  having  sufficient 
knowledge  and  judgment  to  be  able  to  produce  an  article 
for  which  there  is  a  profitable  market,  or,  in  the  case 
of  jobbers,  to  resell  a  commodity  at  a  profit.  The  ability 
of  the  average  wage  earner  or  salaried  employee  to  meet 
his  obligations  depends  somewhat  on  the  nature  of 
his  employment  and  to  some  extent  on  whether  or  not 
he  is  living  beyond  his  means. 

Another  necessary  factor  of  credit  is  experience.    The 


FUNDAMENTAL   PRINCIPLES  9 

one  to  whom  credit  is  extended  must  have  had  ex- 
perience in  the  Hne  of  business  in  which  they  are  en- 
gaged, and  this  experience  in  most  cases  must  be  prac- 
tical and  not  theoretical.  A  school  or  business  college 
cannot  turn  out  young  men  as  full-fledged  business  men 
who  can  make  an  immediate  business  success  without 
any  practical  experience.  A  young  man  of  immature 
experience  may  make  a  success  of  business  and  may  be 
entitled  to  credit,  if  he  has  all  the  other  necessary  factors 
to  establish  a  credit,  but  the  hazard  is  greater  in  dealing 
with  an  inexperienced  credit  risk  than  it  is  in  dealing 
with  an  experienced  one. 

Experience  is  also  required  on  the  part  of  the  credit 
grantor,  in  that  he  must  be  able  to  analyze  human 
nature  and  have  had  experience  in  dealing  with  business 
men  and  business  institutions;  he  must  have  had  some 
experience  in  analyzing  financial  statements;  so  that  it 
is  clear  experience  is  a  very  necessary  element  of  credit. 

The  general  reputation  of  the  parties  to  a  transaction 
is  also  an  important  element  of  credit.  If  a  seeker  of 
credit  has  a  poor  reputation  for  paying  his  bills,  or  has 
the  reputation  of  dissipating  or  neglecting  his  business, 
or  has  the  reputation  of  a  generally  low  moral  standard, 
the  credit  man  should  carefully  investigate  his  standing 
in  this  respect.  Sometimes  such  a  reputation  is  unjust, 
and  has  been  circulated  by  enemies.  In  that  sense 
reputation  is  different  from  character,  for  a  man  may 
have  a  poor  reputation  temporarily  but  fundamentally 


10  MERCANTILE   CREDITS   AND    COLLECTIONS 

have  a  good  character.  On  the  other  hand,  clever 
seekers  of  credit  have  practically  no  character  but  often 
temporarily  have  a  good  reputation.  A  man's  reputa- 
tion, whether  good  or  bad,  always  reflects  upon  his 
credit  accordingly  and  his  reputation  is  a  large  element 
of  his  credit. 

Another  element  of  credit  is  judgment.  The  use  of 
the  term  ''judgment"  covers  a  broad  field,  but  whether 
good,  sound  business  judgment  exists  in  a  seeker  of 
credit  or  not  can  usually  be  determined  by  proper 
inquiry.  For  instance,  a  manufacturer  who  is  devoting 
a  large  part  of  his  capital  and  labor  toward  experiment- 
ing in  theoretical  or  visionary  ways  naturally  affects 
his  credit;  a  jobber  who  frequently  overstocks  displays 
poor  judgment;  a  jobber  who  invests  a  large  portion 
of  his  capital  in  a  building  frequently  displays  poor 
judgment.  If  the  assets  of  a  seeker  of  credit  are  tied 
up  in  slow-moving  or  non-productive  assets,  good 
business  judgment  is  lacking.  The  business  man  of 
good  judgment  will  see  that  his  turn-over  is  frequent; 
that  terms  of  sale  are  reasonably  short;  that  he  is  not 
overstocked,  and  that  his  merchandise  does  not  be- 
come obsolete.  An  individual  who  expects  credit  will 
display  good  judgment  by  not  living  beyond  his  means, 
so  that  his  obligations  can  be  paid  when  they  are  due. 
If  he  has  any  tendency  to  speculate,  he  should  only 
speculate  with  certain  funds  from  a  savings  account. 
Judgment  must  also  be  displayed  on  the  part  of  the 


FUNDAMENTAL   PRINCIPLES  11 

granter  of  credit.  After  careful  inquiry  of  the  buyer's 
standing  and  after  weighing  all  the  facts,  the  final 
approval  or  rejection  of  a  credit  order  requires  good 
judgment.  Many  doubtful  looking  orders  can  be  made 
safe  by  applying  the  proper  remedy  as  will  be  shown 
later  herein. 


CHAPTER  II 

FUNCTIONS   OF   THE    CREDIT   MAN 

It  is  not  siifficient  for  the  credit  man  to  merely  0  K 
the  order  of  a  concern  rated  AA  Al  and  turn  down 
orders  of  buyers  with  merely  medium  or  poor  rating; 
an  office  boy  or  clerk  could  exercise  that  function. 
The  credit  man  must  not  only  get  all  the  available  re- 
liable information  that  he  can  concerning  a  customer, 
but  should  also  make  an  effort  to  turn  an  order  from  a 
poorly  rated  concern  into  a  good  order  by  obtaining 
security,  or  by  giving  advice  to  the  customer  or  in  any 
other  way  that  he  can.  His  position  is  one  of  trust  and 
responsibility,  and  in  many  respects  his  responsibility 
is  greater  than  that  of  a  banker.  The  banker  is  very 
frequently  in  a  position  to  obtain  collateral  or  real 
estate  security;  he  has  the  advantage  of  seeing  a  bor- 
rower's checking  account,  and  is  also  in  position  to 
require  a  written,  definite,  concrete,  unconditional 
obligation  of  the  borrower  before  parting  with  value. 

On  the  other  hand,  a  credit  man  who  is  safeguarding 

the  property  and  investments  of  his  employer  usually 

is  furnished  with  nothing  but  the  order  of  a  buyer, 

which  may  be  only  verbal,  but  even  if  written  is  usually 

unsecured,  and  there  is  no  definite,  concrete  obliga- 

12 


FUNCTIONS   OF   THE    CREDIT   MAN  13 

tion  to  pay  on  a  certain  date,  other  than  a  sort  of  general 
understanding  on  the  part  of  the  buyer  of  what  the 
terms  of  the  seller  may  be.  Often  a  credit  man  must 
approve  or  reject  such  an  order  on  very  short  notice, 
and  has  but  a  limited  time  to  investigate  the  buyer's 
standing,  and  seldom  has  the  opportunity  of  analyzing  a 
buyer's  personal  characteristics  from  personal  contact, 
an  advantage,  for  instance,  which  a  banker  often  has. 

Notwithstanding  these  facts,  it  is  not  the  function  of 
a  credit  man  to  undertake  to  be  a  prophet  or  take  a 
chance  on  some  buyer.  The  function  of  a  prophet  is 
to  determine  a  future  probable  event  without  having 
any  known  factors  to  guide  him — a  sort  of  mystic 
science.  The  function  of  a  credit  man  is  to  determine 
a  future  probable  event  (that  is,  whether  the  buyer  can 
and  will  pay  on  the  day  agreed  upon)  in  a  commercial 
transaction,  based  upon  present  KNOWN  factors — 
an  exact  science. 

The  great  difficulty  is  the  tendency  to  attempt  to 
determine  this  probable  future  commercial  event  with- 
out having  all  the  present  known  factors  as  a  guide; 
or  by  using  as  a  guide  information  that  has  not  been 
verified,  and  this  is  very  frequently  the  cause  of  unusual 
and  unnecessary  losses  that  could  have  been  avoided 
if  the  credit  man  had  sufficiently  investigated  the  facts; 
or  if  the  credit  man  had  so  developed  the  other  com- 
ponent parts  of  the  organization  with  which  he  is  con- 
nected to  obtain  these  facts. 


14  MERCANTILE    CREDITS   AND    COLLECTIONS 

In  the  proper  exercise  of  his  duties  the  credit  man 
can  improve  the  business  of  his  employers  by  construc- 
tive methods;  he  can  guide  the  salesmen  of  the  com- 
pany by  analyzing  territorial  conditions;  he  can  give 
the  salesman  a  list  of  good  concerns  in  the  community 
that  the  salesman  intends  to  visit,  instead  of  allowing 
the  salesman  to  form  his  own  conclusions  in  that  regard. 
Many  salesmen  lack  sufficient  training  in  financial 
matters  and  often  seek  to  establish  an  agency  based 
wholly  upon  the  physical  appearance  of  the  store  and 
the  look  of  prosperity  of  the  prospective  customer. 
Sometimes  the  best  looking  store  in  a  community,  the 
building  and  fixtures  of  which  represent  substantially 
all  the  capital  of  the  concern,  is  on  the  verge  of  bank- 
ruptcy. Frequently  the  physical  look  of  prosperity 
is  due  to  overexpansion  and  overbuying,  and  in  addi- 
tion to  the  money  invested  in  the  building,  the  balance 
of  their  capital  may  be  tied  up  in  slow-moving  assets. 
It  is  not,  however,  unusual  for  a  salesman  to  rely 
largely  upon  the  physical  appearance  of  the  prosperous 
looking  individual  and  the  prosperous  looking  estab- 
hshment  which  he  conducts,  and  usually  when  making 
an  agency  with  this  concern  considers  that  he  has  made 
a  desirable  agency  and  is  very  much  exercised  if  the 
credit  man  later  rejects  the  order.  In  the  same  town 
there  may  be,  and  probably  are,  one  or  two  other  con- 
cerns whose  business  establishments  are  not  so  pre- 
tentious and  whose  more  modest  owners  are  somewhat 


FUNCTIONS   OF   THE    CREDIT   MAN  15 

less  prosperous  looking,  but  who  are  doing  a  good, 
conservative  business,  and  who  are  paying  their  bills 
promptly  and  are  in  good  credit  standing. 

Therefore,  one  of  the  functions  of  the  credit  man  of  an 
institution  employing  traveling  salesmen  is  to  properly 
guide  the  salesman  starting  out  on  the  territory  by 
giving  him  a  list  of  desirable  credit  risks  in  each  of  the 
towns  he  will  visit  on  his  trip,  in  order  that  money  will 
not  be  uselessly  wasted  in  obtaining  undesirable  orders 
and  in  order  that  closer  harmony  may  be  established 
between  the  sales  and  financial  organizations.  This 
Ust  can  be  readily  compiled  by  reference  to  Dun's 
or  Bradstreet's  rating  books. 

The  functions  of  the  retail  credit  man  present  a  some- 
what different  aspect.  His  clients  are  frequently  pros- 
perous looking  but  are  poor  credit  risks.  For  instance, 
in  clothing  or  dry  goods  establishments  the  moral  risk 
is  a  large  factor,  and  it  is  very  rarely  that  a  loss  occurs 
in  this  class  of  trade  if  the  moral  hazard  is  good  and 
the  seeker  of  credit  is  living  within  his  means,  is  pro- 
gressive, enjoys  a  good  standing  and  is  in  an  established 
position.  Much  tact,  however,  is  required  in  the  han- 
dling of  individuals;  a  credit  limit  is  usually  established 
on  each  account,  so  that  an  assistant  may  pass  on  orders 
as  they  come  in  from  time  to  time  from  the  various 
departments.  The  co-operation  of  the  department 
managers  and  bookkeeping  and  collections  departments 
is  very  necessary  to  enable  the  credit  man  to  properly 


16  MERCANTILE   CREDITS   AND    COLLECTIONS 

exercise  his  function  in  this  respect.  A  newcomer's 
antecedents  should  be  investigated  very  carefully.  If 
possible,  the  reason  for  a  newcomer  having  changed 
from  his  previous  location  should  always  be  determined, 
as  this  will  give  a  clue  as  to  some  of  the  general  char- 
acteristics of  the  applicant.  A  man  who  moves  around 
the  country  without  any  definite  purpose  in  view,  leav- 
ing unpaid  bills  stringing  along  behind  him  wherever 
he  goes,  is,  of  course,  not  entitled  to  credit  and  an  in- 
vestigation of  antecedents  can  and  usually  will  disclose 
these  facts. 

To  watch  credits  and  collect  money  is  not  sufficient. 
A  credit  man  can  actually  become  an  important  ad- 
junct of  the  selling  organization  by  increasing  sales — 
without  any  expense  he  can  be  a  large  factor  in  getting 
repeat  orders.  A  credit  man  can  make  more  customers 
pay  up,  and  then  quit  purchasing,  more  surely  than 
any  other  man  in  the  organization;  but  systematic, 
tactful,  diplomatic  letters  of  the  proper  spirit  will  de- 
velop into  good  salesmen  and  probable  order  getters 
and  good  collectors  as  well. 

It  is  profitable  for  a  credit  man  and  for  his  house  to  as- 
sist in  building  up  and  expanding  the  business  of  custom- 
ers by  advice  and  help.  If  a  customer  of  yours  gets  be- 
hind in  his  payments  an  analysis  of  the  reason  for  this 
condition  can  be  made  by  a  study  of  the  financial  state- 
ment of  the  customer.  If  the  customer  is  overstocked, 
suggestions  can  be  made  for  moving  the  stock  by  proper 


FUNCTIONS   OF   THE    CREDIT  MAN  17 

sales  campaigns;  if  too  much  money  is  outstanding, 
accounts  can  be  realized  on  by  suggesting  to  the  cus- 
tomer the  methods  of  conducting  a  collection  campaign; 
if  the  business  has  fallen  off  and  expenses  are  out  of 
proportion  to  volume,  suggestions  can  be  made  for 
cutting  expenses.  Advice  covering  whatever  may  be 
necessary  for  your  customer  to  do  to  put  his  operations 
on  the  right  side  of  the  ledger  will  not  only  enable  that 
customer  to  pay  his  obligation  to  you,  but  you  will  be 
more  than  repaid  in  the  future  business  you  will  secure 
from  one  who  has  profited  by  your  advice. 

It  requires  an  analysis  of  each  particular  case  to 
know  what  suggestions  of  value  can  be  made  to  the 
customer,  but  if  you  get  the  confidence  of  your  debtors 
so  that  they  are  frank  with  you  and  will  come  to  you 
and  tell  you  their  troubles,  or  write  them  to  you,  much 
misunderstanding  and  difficulty  will  be  avoided,  and 
that  harmony  and  goodfellowship  in  business  will  be 
established  that  is  profitable  to  both  buyer  and  seller. 

If  statements  are  made  by  seekers  of  credit  that  can- 
not be  verified,  credit  should  be  refused.  If  a  man 
makes  an  unqualified  statement  that  he  owns  a  certain 
piece  of  real  estate  and  investigation  discloses  that  it 
stands  in  the  name  of  his  wife,  credit  should  be  refused 
unless  the  wife  guarantees  payment  or  joins  in  the 
obligation  with  her  husband. 

Many  organizations,  particularly  the  local  associa- 
tions of  the  National  Association  of  Credit  Men,  main- 


18  MERCANTILE    CREDITS   AND    COLLECTIONS 

tain  prosecution  committees  and  have  a  prosecution 
fund  with  which  to  prosecute  fraudulent  debtors.  A 
credit  man  should  discourage  all  forms  of  dishonesty 
and  offer  by  his  own  individual  effort  and  by  his  effort 
in  conjunction  with  organized  committees  to  make  it 
difficult  for  commerical  crooks  to  prosper. 

The  author  believes,  however,  that  one  of  the  most 
effective  ways  of  discouraging  dishonesty  is  not  so 
much  in  the  prosecution  of  dishonest  debtors  as  in 
careful  investigation  of  all  applicants  for  credit  and  the 
absolute  refusal  of  credit  to  those  whose  statements 
are  found  to  be  lacking  in  truth. 


CHAPTER  III 

SOURCES   OF   INFORMATION   AND    FORMS    SUGGESTED,    TO 
BE   OBTAINED   FROM   SALESMEN 

Where  salesmen  are  employed  they  should  be  taught 
and  instructed  to  send  in  with  each  order  from  a  new 
customer  all  the  information  they  can  concerning  the 
financial  standing  of  the  buyer.  A  salesman  can  be 
taught  to  get  the  necessary  information  from  a  "touchy" 
individual,  by  using  a  little  tact  and  diplomacy,  with- 
out letting  the  customer  know  that  he  is  actually  getting 
the  information.  Much  of  it  can  be  obtained  in  con- 
versation with  the  customer  in  a  casual  way,  just  as 
though  the  salesman  was  interested  in  his  business. 
Other  information  can  be  obtained  by  mere  observa- 
tion of  the  premises,  and  still  additional  information 
can  be  obtained  from  a  local  bank  and  occasionally 
from  other  merchants  in  the  town.  Sometimes  infor- 
mation can  be  obtained  from  salesmen  representing 
other  concerns  selling  to  this  customer  with  whom  your 
salesman  is  acquainted. 

When  a  full  and  complete  report  is  received  from  the 
salesman,  it  gives  the  credit  man  some  information  to 
start  with  and  as  soon  as  a  substantial  part  of  it  is 
verified,  the  order  can  always  be  passed  more  quickly 

19 


20  MERCANTILE    CREDITS   AND   COLLECTIONS 

than  when  no  information  has  been  given.  If  no  in- 
formation is  sent  in  with  the  order,  or  if  the  concern 
from  whom  the  order  is  received  does  not  enjoy  a  well- 
established  rating  with  the  mercantile  agencies,  the 
credit  man  is  plunged  into  a  sort  of  fishing  expedition. 
The  following  are  samples  of  blanks  recommended 
for  Salesman's  Credit  Reports;  the  first  being  a  form 
upon  which  to  report  merchants;  the  second,  manu- 
facturers; the  third,  farmers;  the  fourth,  oil  producers; 
and  the  fifth,  metal  mining  companies: 

MERCHANTS'  FORM 

SALESMAN'S  NEW  CUSTOMER  REPORT 

SMITH,  BROWN  &  CO. 

(To  be  filled  out  and  sent  in  with  each  new  customer's  order) 

Name 

(Be  sure  Name  is  correct) 
City State 


Age? Habits?.... 

Business? 

Length  of  time  engaged  in  this  business? . 

Banks  with? 

Owns  store  building? 

Owns  real  estate? 

Encumbrances? 

Stock  valued  at? 

Insurance? 

Supposed  net  worth? 


SOURCES   OF   INFORMATION   AND    FORMS  21 

Business  ability? 

Competition? 

Ever  fail? 

Buys  from? 

{Give  all  navies  that  could  he  used  for  reference) 


To  what  amount  would  you  recommend  credit? . 
Remarks: 


Date Salesman. 

Suggestions  to  assist  salesmen  in  getting  the  infor- 
mation called  for  by  these  reports  are  very  helpful. 
Analyzing  the  first  report  to  be  sent  in  by  salesmen 
who  take  a  first  order  from  merchants  or  dealers,  the 
following  suggestions  are  offered: 

Age:  It  is  not  always  necessary  to  inquire  the  pros- 
pect's age,  and  it  can  be  explained  to  the  salesman 
that  if  the  personality  of  the  buyer  indicates  he  might 
construe  this  as  a  personal  question,  it  will  be  sufficient 
for  the  salesman  to  estimate  or  guess  at  the  age  of  the 
prospect.  It  is,  however,  very  desirable  for  a  credit 
man  to  have  some  idea  of  the  age  of  the  debtor,  be- 
cause it  is  an  important  factor,  as  has  been  previously 
shown. 

Habits:  A  man's  habits  are  usually  ascertamable  in 
the  same  method  that  mformation  concerning  his  busi- 


22  MERCANTILE    CREDITS   AND    COLLECTIONS 

ness  ability  can  be  obtained.  It  is  very  important, 
however,  to  know  the  habits  of  the  buyer.  It  should 
be  stated  whether  his  habits  are  good  or  bad  and 
whether  he  is  reputed  to  pay  promptly  or  otherwise; 
whether  he  gives  the  business  close  attention  or  not 
should  also  be  stated. 

Business:  This  blank  space  is  left  for  the  purpose  of 
filling  in  the  kind  of  business  the  prospect  is  engaged 
in;  that  is,  whether  it  is  a  general  merchandise  business, 
shoe  business,  machinery  business,  or  any  other  specific 
kind  of  business.  This  information  the  salesman  can 
readily  get. 

Length  of  time  engaged  in  this  business:  The  time  the 
prospect  has  been  engaged  in  business  can  be  learned 
without  any  difficulty,  usually  in  a  casual  way.  Most 
men  are  proud  to  make  statements  as  to  the  length  of 
time  they  have  been  engaged  in  business  and  the  ex- 
perience they  have  had.  If,  however,  the  salesman 
should  experience  any  difficulty  in  getting  this  infor- 
mation from  the  prospect,  he  can  get  it  from  prospect's 
bank,  where  he  will  call  for  additional  information  any 
way. 

Banks  with:  It  is  usually  necessary  to  find  out  the 
name  of  the  prospect's  bank  by  direct  question,  but 
every  buyer  understands  he  must  furnish  some  reference 
and  make  some  statements  as  to  his  standing,  unless  he 
has  made  a  statement  to  the  mercantile  agencies,  and 
even  then  he  will  not  object  to  giving  the  name  of  his 


SOURCES   OF   INFORMATION   AND    FORMS  23 

bank  or  such  specific  information  as  the  salesman  may 
desire.  Therefore,  no  difficulty  whatever  should  be 
experienced  by  any  salesman  in  learning  the  name  of 
prospective  customer's  bank,  though  it  may  take  some 
tact  and  diplomacy  to  get  some  of  the  other  information. 

Owns  store  building:  Ordinarily  it  is  not  difficult  for 
a  shrewd  salesman  to  learn  from  the  buyer  whether  he 
rents  or  owns  the  store  he  occupies,  and  also  whether 
he  owns  any  other  real  estate,  but  it  is  not  always  easy 
to  learn  the  amount  of  the  encumbrances,  asked  for 
by  the  next  question. 

Encumbrances:  Usually  the  buyer's  banker  knows 
what  the  buyer's  mortgages  amount  to,  and  any  other 
encumbrances  that  may  exist;  or  if  convenient,  this 
can  be  readily  learned  from  the  Coimty  Recorder's 
office.  If  the  particular  town  where  the  prospect  lives 
is  the  County  seat,  the  salesman  can  get  the  informa- 
tion by  calling  on  the  Recorder.  If  the  bank  cannot 
furnish  the  amount  of  encumbrances  and  the  County 
seat  is  located  elsewhere,  the  salesman  should  so  state, 
so  that  the  credit  man  can  write  to  the  County  Recorder 
for  the  necessary  information. 

Stock  valued  at:  It  is  not  usually  difficult  to  get  the 
prospect  to  make  a  statement  of  the  value  of  his  stock, 
though  it  must  be  remembered  that  most  of  the  owners 
are  likely  to  overvalue  their  stock,  and  due  allowance 
must  be  made  for  depreciation  and  for  obsolete  stock, 
which  is  usually  inventoried  at  cost  and  usually  claimed 


24  MERCANTILE   CREDITS   AND   COLLECTIONS 

to  be  worth  it.  Salesman  should  be  taught  to  show  in 
the  remarks  column  whether  the  stock  is  well  kept  or 
poorly  kept,  and  whether  it  is  up-to-date  or  growing 
obsolete. 

Insurance:  The  amount  of  insurance  can  usually  be 
obtained  in  conversation,  or  from  the  bank.  Most 
salesmen  will  regard  this  of  little  consequence,  but  a 
credit  man  will  realize  that  a  merchant  who  is  careless 
enough  not  to  cover  himself  by  insurance  is  not  a  de- 
sirable risk.  That  carelessness  probably  extends  to 
other  branches  of  his  business,  and  a  fire  loss  or  casualty 
loss  (if  there  is  a  workmen's  compensation  law  in  the 
State)  might  wipe  him  out  entirely.  Salesmen  should  be 
carefully  cautioned  that  it  is  necessary  to  learn  to 
what  extent  their  new  customer  is  covered  by  in- 
surance. 

Supposed  net  worth:  This  information  may  be  gleaned 
in  conversation  with  the  buyer,  or  it  may  be  necessary 
to  get  it  from  the  bank  referred  to. 

Business  ability:  This  question  must  be  answered  by 
expression  of  opinion,  based  on  personal  conversation, 
observation  and  what  may  be  learned  from  local  towns- 
people or  other  salesmen,  or  from  the  local  banker. 

Competition:  The  character  of  competition  of  a  new 
customer  can  usually  be  answered  from  information 
obtained  in  conversation,  or  by  observation,  or  by 
local  inquiry. 

Ever  failed  ?  This  information  is  usually  obtained  in 


SOURCES  OF  INFORMATION  AND  FORMS      25 

the  same  method  that  information  concerning  the  three 
questions  immediately  preceding  is  obtained. 

To  what  amount  would  you  recommend  credit  f  This  is  a 
very  important  question,  and  credit  men  should  insist 
upon  salesmen  answering  this  question  in  some  way. 
It  will  compel  the  salesman  to  exercise  more  care  in 
answering  the  other  questions  on  the  credit  report 
blank,  especially  if  he  knows  that  he  is  on  record  as  to 
his  recommendation  of  credit,  and  while  he  realizes 
that  he  is  not  responsible  directly  in  case  of  loss,  he 
knows  that  his  judgment  is  liable  to  be  checked  up 
later  on  if  difficulty  should  be  experienced  in  making 
collection  or  if  the  account  should  develop  into  a  bad 
one.  He  is  sure  to  give  you  more  assistance  if  he  has 
recommended  a  line  of  credit,  and  he  is  also  sure  to 
realize  that  it  is  not  a  safe  proposition  to  recommend 
credit  if  he  knows  there  is  a  serious  question  about  the 
buyer  being  good  for  the  amount. 

Buys  from:  This  information  should  not  be  difficult 
to  ascertain,  as  usually  the  character  of  the  goods  will 
indicate  to  the  salesman  where  they  are  bought.  In 
many  lines  of  business  the  brands  of  the  goods  them- 
selves will  give  the  salesman  a  line  on  this.  If  not,  con- 
versation with  the  prospective  buyer  will  bring  it  out. 

Remarks:  In  this  space  the  salesman  can  give  any 
general  information  not  covered  by  the  questions  pro- 
vided. 

After  you  get  your  salesmen  trained  to  use  these 


26  MERCANTILE    CREDITS   AND    COLLECTIONS 

blanks,  some  of  them  will  be  so  careful  in  getting  the 
information  that  you  can  very  largely  depend  upon  it 
to  make  shipment  of  some  orders  without  waiting  to 
verify  all  the  detail  as  to  the  financial  standing  of  the 
customer.  It  is,  of  course,  always  important  to  verify 
these  statements,  but  an  opening  order  of  reasonable 
amount  can  sometimes  be  passed  based  on  the  infor- 
mation accompanying  the  order  furnished  by  the  sales- 
man. 

The  next  blank  shown  is  suggested  to  be  used  as  a 
basis  for  use  of  the  credit  man  in  designing  one  to  suit 
the  special  requirements  of  the  institution  he  represents, 
in  case  the  sales  are  largely  with  manufacturers.  The 
manufacturing  field  is  so  broad  that  it  would  be  im- 
possible to  design  a  blank  that  would  cover  all  phases 
of  the  manufacturing  business,  but  the  blank  following 
may  be  used  as  a  guide  in  designing  a  blank  that  will 
compel  the  salesman  to  furnish  such  information  as  the 
credit  man  might  desire,  particularly  from  small  manu- 
facturers who  may  not  be  rated  by  the  mercantile  agen- 
cies or  who  have  not  become  thoroughly  established. 


SOURCES   OF   INFORMATION   AND    FORMS  27 

MANUFACTURERS'  FORM 

SALESMAN'S  NEW  CUSTOMER  REPORT 

SMITH,  BROWN  &  CO. 

(To  be  filled  out  and  sent  in  with  each  new  customer's  order) 

Name 

{Be  sure  Name  is  correct) 
City State 


Age? Habits? 

(7/  an  individual) 

Length  of  time  engaged  in  this  business? 

(7/  a  corporation  how  long  organized) 
Names  of  principals  interested? 


Do  you  consider  interested  parties  experienced? 

Character  of  business? 

Banks  with? 

Own  or  lease  plant? Do  you  consider  the  plant  modern?. 

Does  the  plant  impress  you  as  being  in  good  condition? 

Amount  of  insurance? Estimate  value  of  plant? 

Amount  of  encumbrances  or  bonds  outstanding? 

Have  the  principals  other  interests? 

Is  the  market  local  or  general? 

Are  specialties  made  or  standard  articles  manufactured? 

Competition? 

Buys  from? 

{Give  all  names  that  could  he  used  for  reference) 


28  MERCANTILE    CREDITS   AND    COLLECTIONS 


To  what  amount  would  you  recommend  credit? . 
Remarks 


Date Salesman. 

The  information  required  by  the  salesman  to  prop- 
erly fill  out  the  manufacturers'  credit  report  can  be  got- 
ten in  the  same  way  that  information  concerning  mer- 
chants is  procured.  It  is  deemed  unnecessary  to  draw 
up  any  additional  suggestions  in  that  respect.  Some 
of  the  questions,  of  course,  cover  an  entirely  different 
field  than  the  information  necessary  from  merchants, 
but  each  question  is  sufficiently  self-explanatory  to  in- 
dicate the  source  from  which  such  information  can  be 
secured. 

FARMERS'  FORM 

SALESMAN'S  NEW  CUSTOMER  REPORT 

SMITH,  BROWN  &  CO. 

(To  be  filled  out  and  sent  in  with  each  new  customer's  order) 

Name 

(Be  sure  Name  is  correct) 
City State 


Age? Habits? 

Banks  with? 

Number  of  acres  in  farm? Value  per  acre?.  .  . 

Value  of  improvements? Value  of  livestock? . 


SOURCES   OF   INFORMATION   AND    FORMS  29 

Encumbrances  on  land? 

Chattel  mortgages  on  livestock? 

Kinds  of  crops  grown? 

Supposed  net  worth? 

Buys  from? 

(Give  all  names  that  could  be  used  for  reference) 

To  what  amount  would  you  recommend  credit? 

Remarks: 


Date Salesman. 

Analyzing  the  salesmen's  new  customer  report  on 
Farmers,  the  following  recommendations  are  offered: 

Age:  The  same  suggestions  as  have  been  referred  to 
in  connection  with  merchants  or  dealers  blanks  apply 
equally  as  well  to  farmers. 

Habits:  Same  suggestions  are  offered  as  in  connection 
with  the  merchants'  credit  report  blanks. 

Banks  with:  Same  suggestions  are  offered  as  in  the 
case  of  merchants  or  dealers. 

Number  of  acres  in  farm:  This  is  very  easy  to  get, 
because  every  farmer  takes  pride  in  quoting  the  number 
of  acres  of  land  he  owns.  Salesmen  should  be  instructed 
to  state  in  answer  to  this  question  whether  the  land 
is  owned  by  the  farmer,  worked  on  shares  or  leased, 
or  this  can  be  covered  under  the  subject  of  re- 
marks. 

Value  per  acre:  The  value  of  the  land  can  be  obtained 


30  MEECANTILE   CREDITS   AND    COLLECTIONS 

in  conversation  with  the  owner.  This  gives  the  owner's 
estimate  of  the  value.  The  bank  will  also  furnish  a 
statement  of  the  value  of  the  land,  or  it  can  be  obtained 
in  the  neighborhood,  as  in  most  districts  land  in  a  par- 
ticular area  has  a  fairly  well-established  and  known 
value. 

Value  of  improvemerits:  Unless  the  salesman  obtained 
some  estimate  of  the  value  of  the  improvements  from 
conversation  with  the  prospective  buyer,  he  must  use 
his  own  judgment  as  to  the  value  of  the  improvements 
on  the  farm. 

Value  of  livestock:  An  estimate  of  the  value  of  the 
farmer's  livestock  can  be  obtained  by  learning  some- 
thing as  to  the  number  of  head  of  various  kinds  of  live- 
stock owned. 

Encumbrances  on  land:  The  encumbrances  may  be 
learned  from  the  prospective  buyer,  or  from  the  buyer's 
bank,  in  the  same  way  that  it  is  suggested  this  infor- 
mation be  gotten  under  the  discussion  of  the  merchants' 
credit  reports. 

Chattel  mortgages  on  livestock:  Salesman  must  get 
this  information  either  from  the  buyer  in  conversation, 
from  his  banker  or  from  the  records. 

Kinds  of  crops  grown:  This  is  obtained  either  from 
conversation  or  observation. 

Supposed  net  worth:  Same  suggestions  are  offered  as 
in  connection  with  the  merchants'  credit  report  blanks. 

To  what  amount  would  you  recommend  credit:  Same 


SOURCES   OF   INFORMATION   AND    FORMS  31 

suggestions  are  offered  as  in  connection  with  the  mer- 
chants' credit  report  blanks. 

Buys  from:  Suggest  that  here  be  given  the  names  of 
dealers  from  whom  the  farmer  purchases  his  implements 
and  supplies,  which  is  usually  from  a  recognized  im- 
plement house  or  from  the  local  merchants. 

Remarks:  This  space  is  provided  so  that  the  sales- 
man can  fill  in  anything  not  covered  by  the  printed 
questions  in  the  blank. 

OIL  WELL  SUPPLIES 

SALESMAN'S  NEW  CUSTOMER  REPORT 

SMITH,  BROWN  &  CO. 

(To  be  filled  out  and  sent  in  with  each  new  customer's  order) 

Name 

(Be  sure  Name  is  correct) 
City State 


Age? Habits? 

(//  an  Individual) 

Length  of  time  engaged  in  this  business? 

(7/  a  corporation  how  long  organized) 
Names  of  principals  interested? 


Banks  with? 

Number  of  acres  held? Owned  or  leased? 

Number  of  wells  producing? Number  of  wells  drilling?. 

Amount  of  royalty? 

Markets  oil  through? 


32  MERCANTILE   CREDITS   AND    COLLECTIONS 

Depth  of  wells  in  this  district? 

Average  gravity  of  oil  produced? 

Estimated  value  of  land  owned? 

Estimated  value  of  leasehold  interests? 

What  are  the  drilling  requirements? 

What  are  the  forfeiture  conditions  in  the  leases? 

Character  and  amount  of  encumbrances? 

Buys  from? 

{Give  all  Names  that  could  be  used  for  reference) 


To  what  amount  would  you  recommend  credit? . 
Remarks : 


Date Salesman. 

Getting  reliable  information  from  producers  of  crude 
oil  presents  a  little  different  problem.  Frequently  the 
supplies  for  wells— casings,  drilling  tools,  machinery, 
etc. — is  purchased  by  a  superintendent  on  the  ground, 
while  the  executive  offices,  or  principals  of  the  com- 
pany familiar  with  the  terms  of  the  lease,  the  amount 
of  royalty,  forfeiture  conditions,  and  amount  of  en- 
cumbrances, are  elsewhere.  Sometimes  the  material 
is  ordered  by  a  purchasing  agent,  who  is  not  familiar 
with  these  facts.  But  whatever  information  the  sales- 
man can  get  from  the  field  superintendent  or  purchas- 
ing agent,  or  the  party  placing  the  order,  should  be  filled 
out,  as  it  will  assist  the  credit  man  in  completing  his 
investigation. 


SOURCES   OF   INFORMATION   AND    FORMS  33 

If  the  operator  is  an  individual  his  age  should  be 
shown,  and  habits.  If  a  corporation,  it  should  be  stated 
how  long  they  have  been  organized  and  what  their 
habits  of  pay  might  be. 

Names  of  principals  interested:  This  can  easily  be 
obtained  from  the  superintendent. 

Banks  with:  This  can  easily  be  obtained  from  the 
superintendent. 

All  the  other  information  called  for  can  be  obtained 
through  the  superintendent,  except  possibly  the  amount 
of  the  royalty,  the  drilling  requirements,  the  forfeiture 
conditions  in  the  leases,  and  the  character  and  amount 
of  encumbrances.  Frequently  this  information  can  be 
secured  in  the  field,  but  if  the  salesman  cannot  get 
that  information  the  superintendent  should  state  the 
name  of  the  secretary  or  other  executive  officer  in 
charge  of  the  main  office  of  the  company,  so  that  the 
credit  man  may  make  inquiry  on  these  points  by  cor- 
respondence. 

It  is  very  important  for  a  credit  man  whose  firm 
sells  oil  well  supplies  to  get  the  information  called  for 
in  the  report.  Mercantile  agencies  seldom  give  infor- 
mation of  the  character  sought.  Seldom  do  any  of  the 
mercantile  agencies  show  the  drilling  requirements, 
forfeiture  conditions,  marketing  arrangements,  depth 
of  wells  in  the  district,  and  gravity  of  oil  produced. 

It  is  not  possible  to  state  what  percentage  of  royalty 
is  prohibitive,  for  in  some  districts  with  shallow  wells 


34  MERCANTILE   CREDITS   AND    COLLECTIONS 

and  high  gravity  oil  the  cost  of  production  is  small,  and 
a  higher  royalty  can  be  paid  in  that  case  than  in  the 
case  of  a  concern  producing  a  low  gravity  oil  from  deep, 
expensive  wells.  Also,  the  hazard  is  greater  in  some 
fields  than  in  others,  and  the  hazard  is  always  greater 
in  deep  wells  than  in  shallow  wells.  If  tools  are  lost 
in  a  deep  well  the  cost  of  fishing  them  out  is  very  ex- 
pensive, and  sometimes  a  well  on  which  thousands  of 
dollars  have  been  spent  has  been  lost  by  dropping  the 
tools. 

It  is  important  to  know  the  marketing  arrangement, 
so  that  if  a  debtor  gets  behind  you  can  get  an  order  on 
the  company  through  which  the  product  is  marketed,  or 
if  it  is  necessary  to  institute  legal  proceedings  the  pur- 
chaser of  the  oil  may  be  garnisheed.  Of  course,  if  the 
market  is  general  and  the  oil  is  sold  to  the  general  pub- 
lic the  case  is  different,  but  most  producers  of  crude 
oil  market  their  oil  through  some  agency  and  not  di- 
rectly to  the  public. 

The  drilling  requirements  are  also  important  to  know. 
If  the  lease  compels  the  subject  of  inquiry  to  drill  a 
certain  number  of  wells  per  year,  regardless  of  the  mar- 
ket price  of  oil,  the  corporation  may  be  embarrassed 
by  the  expensive  drilling  at  a  tune  when  the  oil  must 
be  sold  below  the  cost  of  production.  A  fair  lease 
should  provide  that  when  oil  goes  below  a  certain  speci- 
fied price  per  barrel,  the  drilling  requirements  are  sus- 
pended until  the  market  recovers. 


SOURCES   OF   INFORMATION   AND    FORMS  35 

Many  losses  are  sustained  by  unfair  forfeiture  con- 
ditions in  the  lease.  Most  leases  provide  that  on  failure 
to  pay  the  royalty,  failure  to  drill  wells,  and  technical 
abandonment  of  the  property,  or  for  other  reasons 
amounting  to  a  forfeiture,  all  improvements  shall  forth- 
with revert  to  the  lessor.  This  is  not  equitable  and 
such  an  agreement  may  not  be  upheld  by  the  courts, 
but  it  is  very  embarrassing  to  a  credit  man  to  find  that 
after  he  caused  the  property  to  be  attached  that  the 
lessor  presents  an  affidavit  claiming  the  ownership  of 
the  improvements,  thereby  releasing  the  attachment, 
unless  the  seller  furnishes  a  bond,  which  may  involve 
him  in  an  action  for  damages.  Where  the  forfeiture 
clause  is  unreasonable,  independent  security  should  be 
obtained,  usually  the  written  guarantee  of  responsible 
interested  parties. 

All  the  other  questions  in  the  credit  report  are  self- 
explanatory. 

The  next  report  is  a  suggestion  for  a  credit  blank  to 
be  used  by  concerns  selling  to  the  metal  mining  industry. 
It  does  not  particularly  cover  coal  mining  operations, 
but  most  coal  mining  companies  are  pretty  well  estab- 
lished and  rated;  if  not,  the  following  blank  gives  an 
idea  of  the  form  in  which  information  can  be  sought, 
with  such  changes  as  apply  to  coal  mines;  such  as,  the 
kind  of  coal  mined,  market,  depth,  whether  it  is  a  pros- 
pective mine  or  a  producing  mine.  In  fact,  it  is  only 
on  prospective  mines  that  credit  information  is  neces- 


36  MERCANTILE    CREDITS   AND   COLLECTIONS 

sary  as  producing  coal  mines  enjoy  a  complete 
rating. 

The  questions  shown  are  self-explanatory,  and  most 
of  them  can  be  answered  from  information  obtained 
from  the  superintendent  or  officer  placing  the  order. 

Promoters  of  prospects  understand  that  deals  with 
mining  companies  are  cash,  or  that  the  obligation  must 
be  well  secured,  and  even  though  there  has  been  some 
development  on  the  mine  it  is  usually  very  hazardous  to 
extend  a  line  of  credit  to  mining  companies  unless  the 
company  furnishes  security  or  a  satisfactory  written 
guarantee. 

MINING  DEPARTMENT 

SALESMAN'S  NEW  CUSTOMER  REPORT 

SMITH,  BROWN  &  CO. 

{To  be  filled  out  and  sent  in  with  each  new  customer's  order) 

Name 

{Be  sure  Name  is  correct) 
City State 


Age? Habits?  

{If  an  individual) 

Length  of  time  engaged  in  this  business? 

(//  a  corporation  how  long  organized) 
Names  of  principals  interested? 

Banks  with? 

Is  the  mine  a  prospect  or  has  it  an  established  production? 

Number  of  men  employed? 


SOURCES   OF  INFORMATION  AND   FORMS  37 

Are  claims  held  on  location  or  patented? 

Distance  from  railroad? Distance  from  nearest  smelter? 

Character  of  ore  mined? Depth  of  main  shaft? 

What  endorsements  or  other  security  offered? 

What  are  the  encumbrances? 

Is  it  a  close  corporation  or  is  the  stock  scattered? 

Is  the  mine  well  equipped? 

What  is  the  value  of  the  improvements? 

Buys  from? 

{Give  all  names  that  could  he  used  for  reference) 

To  what  amount  would  you  recommend  credit? 

Remarks: 


Date Salesman. 

No  attempt  will  be  made  to  outline  the  form  of  credit 
blank  to  be  used  where  merchandise  is  sold  at  retail 
to  the  general  buying  public,  for  the  reason  that  there 
are  so  many  different  classifications  of  retail  business 
that  no  general  form  would  be  suitable  for  the  purpose. 
Furthermore,  some  credit  men  prefer  to  have  a  signed 
application  for  credit  executed  by  the  individual,  and 
also  it  makes  a  difference  whether  the  purchases  are 
largely  made  by  the  wife  of  the  customer  to  whom  the 
goods  are  charged. 

It  is  necessary,  however,  to  get  the  full  name  of  the 
purchaser,  and  if  the  purchases  are  made  by  the  wife, 
the  full  name  of  the  husband,  the  character,  residence, 
address,  the  occupation  of  the  husband,  the  length  of 


38  MERCANTILE   CREDITS   AND    COLLECTIONS 

time  employed  by  the  firm  he  is  then  connected  with, 
the  length  of  time  applicant  has  resided  in  the  city,  and 
if  a  newcomer  where  they  came  from.  The  name  of  a 
bank  should  be  secured,  and  also  provision  made  to 
ascertain  if  property  is  owned,  where  the  business  being 
transacted  will  permit.  Where  signed  applications  are 
required,  it  is  desirable  to  include  in  the  questions 
whether  the  applicant  owns  or  rents  his  home,  and  also 
whether  his  life  is  insured.  A  married  man  with  a 
family  who  has  been  thoughtful  enough  to  provide  life 
insurance  is  usually  a  more  steady  sort  of  an  individual 
than  one  who  is  not  so  thoughtful.  It  is,  of  course, 
important  to  get  the  names  of  other  local  merchants 
with  whom  credit  has  been  established,  but  local  utili- 
ties should  not  be  accepted  as  references,  because  al- 
most every  one  pays  these  bills,  knowing  the  supply  of 
gas,  water  and  electric  light  will  be  shut  off  if  they  do 
not. 

It  is  well  to  distinguish  between  an  established  in- 
dividual and  one  who  is  not  so.  By  established  is 
meant  one  who  has  followed  certain  lines  of  business 
and  has  shown  progress,  rather  than  one  who  has  em- 
barked in  a  new  character  of  employment  every  little 
while,  or  who  has  changed  his  position  frequently,  even 
in  the  same  line  of  business. 


CHAPTER  IV 

SOURCES  OF  INFORMATION  AND  FORMS  SUGGESTED,   EX- 
CLUSIVE  OF   THOSE    FROM   SALESMEN 

A  suitable  form  of  property  statement  blank  to  be 
obtained  from  individuals  direct  is  shown  in  this  chapter. 
This  blank  may  be  left  by  the  salesman  with  the  cus- 
tomer to  be  mailed  to  the  house,  or  it  can  be  mailed  to 
the  customer  from  the  credit  department  with  a  re- 
quest that  it  be  filled  out  and  returned.  The  blank 
shown  herein  is  designed  to  be  folded  up,  with  the 
right  and  left-hand  flaps  turned  in,  over  which  is  folded 
the  upper  flap,  which  is  covered  with  mucilage,  and 
when  so  folded  and  sealed  it  has  the  appearance  of  a 
sealed  envelope.  The  reverse  side  of  the  statement 
is  also  shown,  on  which  should  be  printed  the  name  and 
address  of  the  seller. 

This  form  of  obtaining  the  information  is  far  superior 
to  sending  out  a  blank  to  be  returned  in  an  envelope. 
In  some  states  there  are  no  satisfactory  statutes  or 
laws  for  the  successful  prosecution  of  fraudulent  debtors, 
but  by  the  use  of  this  form  of  property  statement  a 
fraudulent  debtor  can  be  prosecuted  anywhere  in  the 
United  States,  because  you  have  the  evidence  that  the 
statement  was  false  and  that  the  United  States  ma,ils 

39 


40  MERCANTILE   CREDITS  AND   COLLECTIONS 

were  used  for  fraudulent  purposes.  You  do  not  have 
to  show  that  you  preserved  an  envelope,  because  the 
stamp,  the  mark  of  the  cancelling  machine  of  the  post 
office,  the  name  and  address  of  the  seller  and  the  orig- 
inal signature  of  the  buyer  are  all  contained  on  the  one 
document. 

Obtaining  credit  by  fraudulent  statements  when  this 
form  is  used  is  a  federal  offense,  and  even  the  smoothest 
schemers  will  usually  find  relatives  or  friends  who  will 
assist  them  in  taking  care  of  an  obligation  if  they  have 
actually  practiced  fraud  and  when  they  find  out  what 
the  penalty  is  for  making  fraudulent  representations 
on  a  blank  such  as  the  one  shown  here. 

In  seeking  mformation  from  banks,  a  self-addressed 
stamped  envelope  should  be  enclosed  for  reply,  for  al- 
though banks  are  under  some  obligations  to  furnish 
information  concerning  the  standing  of  their  depositors, 
they  are  not  always  under  obligation  to  give  it  to  those 
to  whom  their  depositors  have  not  specifically  referred. 
You  will  get  better  attention  if  you  will  send  a  seK- 
addressed  stamped  envelope,  and  it  is  but  a  proper 
courtesy  to  the  bank  to  whom  the  inquiry  is  addressed. 

The  following  form  is  suitable  to  send  .to  banks: — 


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Credit  Dept 

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SOURCES    OF   INFORMATION   AND    FORMS  41 

CREDIT  DEPARTMENT 
SMITH,   BROWN  &  CO. 

Chicago,  111., ,19    . 


Gentlemen : — 

Please  give  us  below  in  confidence  information  concerning  the 
financial  responsibility,  habits  of  pay,  business  ability  and  char- 
acter of 

Who  has  (has  not)  referred  to  you. 

We  will  treat  the  information  as  confidential  and  accept  same 
without  responsibility  to  you,  and  thank  you  in  advance  for  your 
courtesy. 

We  will  be  pleased  to  reciprocate  when  opportunity  offers. 

Yours  truly, 
SMITH,  BROWN  &  CO. 

By 

Amount  involved? 

Occupation  or  Business? 

Pays  promptly? 

Estimated  net  worth? 

Are  sight  drafts  frequently  drawn? 

Are  they  paid  or  dishonored? 

Other  infonnation? 


(Signature.) 

It  is  usually  desirable  to  send  bank  inquiries  to  several 
banks  in  the  same  town  and  if  the  customer  has  not 


42  MERCANTILE   CREDITS   AND   COLLECTIONS 

referred  to  any  particular  bank,  it  may  be  necessary 
to  send  blanks  to  all  the  banks  in  the  town.  Many 
banks  will  not  give  you  all  the  information  sought,  but 
will  simply  say,  ''Good  for  the  amount"  or  "We  con- 
sider good."  These  are  rather  indefinite  statements, 
but  are  sometimes  helpful  in  connection  with  other  in- 
formation obtained  from  other  sources. 

The  following  blank  is  suitable  to  obtain  information 
from  other  merchants  by  mail: 

CREDIT  DEPARTMENT 
SMITH,  BROWN  &  CO. 

Chicago,  111., ,19    . 


Gentlemen: 

We  have  an  order  from,  and  desire  information  concerning  the 
financial  responsibility,  habits  of  pay,  business  ability,  and  char- 
acter of 

Will  you  kindly  advise  us  your  experience?  We  thank  you  in 
advance  for  your  courtesy,  and  will  be  pleased  to  reciprocate  when 
opportunity  offers. 

Yours  truly, 
SMITH,  BROWN  &  CO. 

By 

Amount  involved 

Occupation  or  Business? 

How  long  sold? 


SOURCES   OF   INFORMATION   AND    FORMS  43 

Highest  credit  within  the  last  year? 

Pays? 

Other  information? 


(Signature.) 

The  best  indication  as  to  whether  a  customer  pays 
promptly  or  not  is  the  information  obtained  from  the 
concerns  with  which  he  deals.  No  matter  what  his 
bank  account  may  show,  or  the  amount  of  stock  he 
carries,  or  how  much  business  he  does,  if  he  is  not  pay- 
ing other  merchants  satisfactorily,  he  is  not  likely  to 
pay  you  on  a  satisfactory  basis.  An  experienced  credit 
man  reUes  on  information  obtained  from  this  source 
to  a  very  great  extent.  In  cities  where  credit  men  are 
organized  as  a  branch  of  the  National  Association  of 
Credit  Men,  or  in  other  communities  where  independ- 
ent credit  organizations  exist,  this  information  is  usually 
obtained  over  the  telephone  from  fellow  members. 
When  it  is  necessary  to  get  the  information  from  out 
of  town  sources,  it  may  be  obtained  either  by  a  blank 
or  by  letter.  A  blank  is  usually  sufficient,  but  if  the  case 
is  an  unusual  one,  or  the  order  requires  immediate  at- 
tention, or  there  are  other  factors  that  make  it  appear 
desirable  to  use  a  letter,  a  special  letter  of  inquiry 
should  be  sent.  It  should  be  your  policy  to  co- 
operate, as  pointed  out  in  a  succeeding  chapter,  with 
these   merchants,  banks,  and   with    the   salesmen   in 


44  MERCANTILE   CREDITS  AND   COLLECTIONS 

getting  the  mformation  as  well  as  expecting  to  re- 
ceive it. 

The  preceding  sources  of  information,  in  addition 
to  oral  investigations  and  interviews  made  by  the  credit 
man,  have  no  reference,  of  course,  to  the  sources  most 
generally  employed — that  of  obtaining  reports  from 
commerical  agencies.  These  reports  are  obtained  by 
filling  out  a  subscriber's  ticket  and  forwarding  it  to  the 
mercantile  agency,  who  usually  have  on  file  statements 
from  active  or  established  institutions.  If  they  do  not 
have  such  reports,  they  get  one  from  their  correspond- 
ent or  through  their  traveling  reporters,  or  by  mail 
direct  from  the  subject  of  the  inquiry.  The  infor- 
mation from  other  sources,  however,  will  tend  to  check 
up  the  report  you  get  from  the  mercantile  agency.  The 
proper  analysis  of  these  reports  will  be  explained  in  a 
succeeding  chapter. 

If  the  character  of  the  business  is  such  that  it  is  de- 
sirable to  get  a  report  from  an  attorney,  a  number  of 
institutions  have  lists  of  approved  attorneys  who  will 
furnish  reports  for  a  reasonable  sum  each,  and  some 
lawyers  will  furnish  general  information  without  charge 
to  clients  who  they  may  have  reason  to  believe  will 
favor  them  with  legal  business  at  some  later  date.  If 
a  blank  is  used  to  send  to  an  attorney  by  the  seller  him- 
self, it  should  be  in  the  general  form  as  the  blank  sent 
to  banks,  with  such  added  information  concerning  suits, 
judgments,  property,  mortgages,  etc.,  as  may  be  wanted. 


SOURCES  OF  INFORMATION  AND  FORMS      45 

However,  attorneys  as  a  class  are  not  very  good  about 
filling  out  a  blank  and  returning  it,  and  the  best  re- 
sults can  usually  be  obtained  from  a  lawyer  by  writing 
him  a  letter.  The  practice  of  sending  blanks  to  at- 
torneys upon  which  to  get  information  is  not  recom- 
mended. 


CHAPTER  V 

METHOD    OF    COMPILING    INFORMATION    AND    FINAL   DIS- 
POSITION  OF   ORDERS 

The  most  satisfactory  way  of  filing  credit  informa- 
tion is  in  a  folder,  perferably  of  the  vertical  type.  In 
that  folder  should  be  filed  the  report  from  the  salesman, 
the  report  from  the  mercantile  agency,  the  reports 
from  banks,  from  other  merchants,  and  the  financial 
statements  made  on  your  own  blank  by  the  customer, 
and  information  from  any  other  source.  If  a  credit 
man  gets  information  over  the  telephone,  it  is  well  to 
make  a  memorandum  of  it  right  after  the  conversation, 
usually  by  dictating  the  essence  of  the  information  to 
the  stenographer  in  the  form  of  a  memorandum  for  the 
files,  and  this  information  should  be  filed  in  the  credit 
folder.  All  subsequent  information  concerning  the  finan- 
cial standing  of  that  particular  customer  should  be  filed 
in  this  folder,  and  all  reports  should  be  bradded  to- 
gether, with  the  first  information  received  on  the  bottom 
and  the  latest  information  received  on  the  top.  In  this 
way  automatically  your  credit  folder  is  kept  in  date 
order,  with  the  latest  information  striking  the  eye  first. 

It  is  recommended  that  a  credit  limit  be  written  in 
on  the  report  most  relied  upon  by  the  credit  man,  and 

46 


METHOD    OF   COMPILING    INFORMATION  47 

this  credit  limit  should  be  transferred  to  a  card  by  some 
stenographer  or  clerk  in  the  office.  The  information 
should  be  kept  up  to  date,  and  the  credit  limits  revised 
as  occasion  may  require.  The  card  fixing  the  credit 
limit  should  be  promptly  sent  m  to  the  bookkeeping 
department,  so  that  the  credit  limit  may  be  immediately 
transferred  to  the  ledger  and  the  bookkeeper  should 
initial  the  credit  limit  card  showing  that  same  has  been 
noted  on  the  customer's  ledger  account.  A  cipher  or 
code  should  be  used  on  the  ledger,  denoting  the  credit 
limit,  to  prevent  the  customer  from  seeing  the  limit  on 
his  account  if  he  should  call  to  settle  and  the  ledger 
used  before  him  for  the  purpose  of  settlement.  After 
the  credit  limit  has  been  fixed,  an  assistant  in  the  office 
of  the  credit  man  can  pass  on  credits,  and  there  is  a 
double  check  on  seeing  that  the  customers  do  not  ex- 
ceed the  limit  fixed,  not  only  by  the  credit  man  or  his 
assistants  watching  the  limit  cards  in  the  card  system 
but  by  the  bookkeepers  as  well. 

It  is  the  duty  of  the  bookkeeper  to  call  the  credit 
department's  attention  to  the  fact  that  the  sum  total 
owing  on  an  account  has  practically  reached,  or  has 
exceeded,  the  credit  limit,  when  that  condition  occurs. 

In  some  sections  of  the  country  a  daily  notification 
sheet  is  issued  by  either  the  mercantile  agencies  or  some 
local  organization,  and  frequently  in  large  communities 
credit  men  subscribe  to  some  of  the  daily  law  journals, 
or  record  sheets,  showing  everything  that  is  recorded 


48  MERCANTILE    CREDITS   AND    COLLECTIONS 

in  that  County  on  the  day  previous.  If  information 
affecting  any  of  your  customers  is  received  from  any  of 
these  sources,  or  if  you  receive  one  of  the  tissue  sheet 
notifications  from  the  mercantile  agencies  of  any  change 
in  a  customer's  affairs,  it  should  all  be  filed  in  the  credit 
folder,  and  a  change  in  credit  limit  made  at  the  time,  if 
any  change  is  necessary  due  to  the  receipt  of  this  in- 
formation. It  is  essential  to  keep  the  credit  folders  up 
to  date,  and  it  is  a  good  practice  to  get  reports  and  re- 
vise your  credit  information  even  on  some  of  the  older 
customers.  There  are  changes  occurring  in  all  their 
affairs,  and  merely  because  a  customer  has  been  a 
throughly  satisfactory  customer  for  several  years  is  not 
always  proof  that  he  will  always  be  prosperous  and 
entitled  to  the  limit  you  have  fixed  on  his  account. 

If  credit  is  not  extended  and  an  initial  order  is  de- 
clined, that  fact  should  be  noted  on  the  report  most 
strongly  relied  upon  by  the  credit  man,  and  a  card 
should  be  made  out  showing  there  is  a  report  on  file 
on  the  subject  of  the  inquiry  but  that  credit  was  de- 
clined. In  this  case,  of  course,  it  is  unnecessary  to 
send  the  card  to  the  bookkeeper  to  be  noted  on  the 
ledger.  Later  on,  however,  this  particular  party  may 
again  seek  credit,  and  having  since  then  prospered  may 
be  entitled  to  it,  in  which  case  the  old  card  is  taken  out 
and  a  new  one  placing  a  limit  thereon  is  substituted, 
and  the  first  card  can  be  filed  in  the  credit  folder. 

Some  credit  men  prefer  to  endorse  on  the  outside  of 


METHOD    OF   COMPILING   INFORMATION  49 

the  credit  folder  a  memorandum  of  each  report  received, 
and  also  the  unfilled  orders  on  hand  approved  but  not 
yet  shipped.  As  to  whether  or  not  this  is  necessary 
largely  depends  upon  the  individual  opinion  of  the 
credit  man  interested.  If  the  credit  data,  however,  is 
properly  bradded  together  and  filed  in  the  credit  folder 
it  is  not  necessary  to  endorse  a  list  of  the  reports  on  the 
outside,  that  being  merely  an  added  convenience  only 
in  case  it  is  thought  desirable. 

When  an  order  from  a  new  customer  is  accepted  a 
letter  of  acceptance  should  be  written  to  the  customer, 
expressing  thanks  in  appropriate  terms  and  making 
such  statements  as  the  character  of  the  business  might 
require.  As  previously  stated,  this  practice  tends  to 
put  the  credit  department  in  closer  touch  with  the  cus- 
tomer when  business  relations  are  first  commenced. 
First  impressions  are  usually  lasting,  and  it  is  good 
business  for  any  credit  man  to  have  a  customer  form  a 
good  impression  of  him  at  first.  It  may  be  very  help- 
ful later,  when  conditions  have  changed  the  financial 
affairs  of  the  customer.  It  is  also  recommended  that 
a  carbon  copy  of  the  letter  of  acceptance  be  sent  to 
the  salesman  who  secured  the  order.  This  establishes 
a  closer  relation  with  the  salesman  and  tends  for  better 
co-operation. 

The  next  thing  to  do  is  to  approve  the  order,  and 
immediately  after  it  is  approved  it  should  be  placed 
with  the  proper  department — either  the  shipping  de- 


50  MERCANTILE   CREDITS   AND    COLLECTIONS 

partment  or  order  department — for  prompt  attention. 
Some  concerns  have  established  a  poUcy  so  broad  that 
the  credit  department  is  required  to  temporarily  ap- 
prove an  order,  so  that  all  its  component  parts  may  be 
gotten  together  ready  for  shipment  in  case  it  is  accepted. 
In  that  case,  a  rubber  stamp  should  be  placed  on  the 
order,  instructing  the  shipping  department  to  get  final 
approval  of  the  credit  department  before  the  shipment 
is  made.  The  final  approval  should  be  written  boldly 
across  the  rubber  stamp  requiring  such  final  approval. 
Of  course,  if  the  order  is  declined  there  is  some  little 
expense  putting  the  material  back  in  stock,  but  as  the 
bulk  of  the  orders  received  are  accepted  this  expense 
is  comparatively  small  compared  with  the  added  busi- 
ness gained  by  giving  customers  prompt  service. 

After  having  exhausted  every  effort  to  obtain  a  re- 
mittance or  security,  or  in  any  other  manner  put  the 
order  into  acceptable  shape,  and  the  credit  man  finds 
he  positively  must  decline  the  order,  circumstances 
should  determine  as  to  what  sort  of  a  communication 
should  be  addressed  to  the  customer,  but  the  refusal 
to  fill  the  order  should  be  so  couched  that  the  ''sting" 
has  been  removed  from  it  and  so  that  it  will  not  create 
a  spirit  of  resentment  in  the  mind  of  the  customer  when 
he  reads  it.  It  is  not  always  possible  to  do  this,  but 
great  care  should  be  exercised  in  the  phraseology  of 
a  letter  notifying  the  customer  that  his  order  cannot 
be  accepted.    This  same  customer  may  recoup  his  finan- 


METHOD    OF   COMPILING   INFORMATION  51 

cial  condition  later  and  become  a  desirable  risk,  and  if 
he  has  become  embittered  by  the  fact  that  credit  was 
refused  him,  your  sales  organization  will  be  at  a  serious 
disadvantage  in  attempting  to  sell  him  and  may  be 
wholly  unable  to  ever  get  him  on  your  list  as  a  customer 
even  when  it  is  known  that  he  is  in  first-class  financial 
condition.  Copies  of  letters  declining  orders  should 
always  be  sent  to  the  salesman  so  that  he  is  fully  in- 
formed of  the  final  action  taken  by  the  house,  in  dis- 
posing of  the  order. 

A  careful  record  should  be  kept  of  all  orders  that  are 
declined,  either  in  your  credit  folders  or  on  your  card 
system,  if  a  card  system  is  used — especially  if  a  card 
system  defining  credit  limitations  is  in  operation.  And 
if  orders  are  received  from  the  same  customer  to  whom 
credit  has  been  refused  before,  if  a  reasonable  time  has 
clasped  since  the  last  order  was  turned  down,  it  is  ad- 
visable to  look  up  the  customer's  standing  again,  as  it 
may  have  improved,  and  a  careful  investigation  of  the 
order  then  under  consideration  might  indicate  that 
credit  might  be  safely  extended  at  that  time.  In  the 
succeeding  chapter  attention  will  be  called  to  the 
necessity  of  using  diplomacy  in  declining  orders. 


CHAPTER  VI 

CO-OPERATION   AND   DIPLOMACY 

It  requires  tact,  skill  and  diplomacy  to  get  the  neces- 
sary co-operation  from  salesmen  and  customers.  The 
idea  that  the  credit  department  and  sales  department 
are  natural  born  enemies  is  a  mistaken  one,  and  credit 
men  should  remember  that  co-operation  means  some- 
thing mutual.  Salesmen  are  naturally  enthusiastic, 
otherwise  they  would  not  be  good  salesmen,  and  it  is 
but  natural  that  their  spirit  is  dampened  when  an  order 
is  rejected,  especially  if  they  have  difficulty  in  obtain- 
ing it  by  reason  of  the  competition  encountered,  or 
because  the  customer  was  hard  to  convince  and  sell. 
A  long  step  in  the  right  direction  is  to  tell  a  salesman 
why  an  order  has  been  rejected,  and  not  merely  state 
that  it  was  rejected  because  the  customer's  credit  was 
no  good.  No  intelligent  credit  man  will  accept  an  order 
of  any  consequence  and  rely  entirely  upon  the  sales- 
man's statement,  ''This  man's  credit  is  0  K,  please 
rush."  An  intelligent  salesman  feels  just  as  bad  when 
he  learns  that  an  order  has  been  declined  without  any 
other  statement  being  given  him  than  that  the  cus- 
tomer's credit  was  unsatisfactory.  It  may  not  be  neces- 
sary to  give  the  salesman  much  detail  information,  but 

52 


CO-OPERATION   AND    DIPLOMACY  53 

a  specific  reason  for  declining  the  order  should  be  given, 
by  stating  that  the  customer  was  overexpanded,  or 
that  he  was  owing  too  much  money  long  past  due,  or 
any  other  specific  reason  that  prompts  a  credit  man  to 
reject  the  order.  Experience  has  shown  that  the  busi- 
ness of  a  house  prospers  most  when  the  sales  depart- 
ment and  the  credit  department  are  working  in  harmony, 
for  it  is  teamwork  that  counts  and  not  internal  organiza- 
tion strife. 

It  has  already  been  stated  that  one  of  the  functions 
of  a  credit  man  is  to  furnish  the  salesman  with  a  list 
of  good  credit  risks  in  the  territory  that  the  salesman 
is  about  to  visit.  Much  good  can  also  be  accomplished 
by  furnishing  the  salesman  with  a  pocket  edition  of  either 
Dun's  or  Bradstreet's  rating  books.  Mercantile  agencies 
furnish  subscribers  with  these  books  for  a  small  amount. 
This  gives  the  salesman  some  idea  of  the  credit  rating  of 
the  customers  in  his  territory.  Some  credit  men  even  go 
so  far  as  to  notify  the  salesman  that  a  credit  limit  has 
been  placed  on  an  account,  and  some  state  the  amount 
of  such  limit,  but  each  credit  man  must  determine  the 
advisability  of  such  a  policy,  depending  upon  the  cir- 
cumstances. 

When  a  customer's  account  is  past  due,  it  is  desirable 
to  send  the  salesman  a  copy  of  all  correspondence  bear- 
ing on  collection.  Frequently  the  salesman  can  help 
you  collect  an  account  if  he  is  fully  informed  as  to  its 
status.    The  salesman  can  also  assist  you  in  adjusting 


54  MERCANTILE    CREDITS   AND   COLLECTIONS 

disputes  or  controversies,  and  he  will  be  more  inclined 
to  render  this  friendly  assistance  if  he  feels  that  you  are 
working  with  him  and  for  him  and  not  against  him. 

All  salesmen  should  be  required  to  send  in  a  credit 
report  on  new  customers,  and  salesmen  should  be  fur- 
nished with  printed  blanks  and  written  instructions  as 
to  what  is  expected  of  them  in  this  report. 

Credit  men  should  bear  in  mind  that  credit  accounts 
do  not  occur  until  a  salesman  has  first  made  a  sale;  and 
salesmen  should  be  taught  the  theory  that  a  sale  is  not 
a  sale  until  the  goods  are  paid  for  and  the  money  is  in 
the  bank.  Bad  debts  represent  not  only  the  value  of 
the  merchandise  which  has  been  lost,  but  represent 
continual  losses  in  time  expended  by  the  salesman, 
credit  department  and  collection  department,  and  prac- 
tically by  every  employee  in  the  house.  A  salesman  who 
knowingly  accepts  an  order,  or  who  could  by  the  use  of 
diligence  ascertain  that  there  is  danger  of  the  goods  not 
being  paid  for,  is  just  as  culpable  as  a  cashier  who  know- 
ingly accepts  counterfeit  money.  The  loss  represented 
by  a  sale  that  develops  into  a  bad  debt  is  measured 
not  only  by  the  loss  of  the  goods  and  profit  thereon, 
but  all  the  selling  and  overhead  expense  are  an  addi- 
tional loss. 

All  salesmen  do  not  understand  this  situation,  be- 
cause they  have  given  it  little  thought,  or  because  they 
have  had  no  training  or  experience.  It  is  hard  for  them 
to  believe  that  a  congenial  customer  who  is  glad  to  see 


CO-OPERATION   AND   DIPLOMACY  55 

them  and  places  a  nice  order,  and  who  has  every  ap- 
pearance of  being  prosperous,  can  possibly  be  a  poor 
risk.  Salesmen  are  prone  to  confuse  inability  to  pay 
with  dishonesty,  and  they  resent  the  rejection  of  an 
order  as  an  imputation  that  their  good-fellow  customer 
is  not  an  honorable  man. 

A  credit  man  can,  however,  by  co-operating  with  a 
salesman  and  keeping  him  informed  by  copies  of  cor- 
respondence with  delinquent  customers  in  his  territory, 
and  by  requiring  information  from  salesmen,  and  train- 
ing them  to  analyze  a  new  customer  through  the  use 
of  the  blanks  shown  previously  herein,  remove  the  bar- 
rier that  often  exists  between  the  credit  department  and 
the  sales  department. 

It  is  also  desirable  to  have  the  co-operation  of  the 
customers  themselves.  This  can  be  accomplished  in 
several  different  ways.  It  is  very  effective  to  start  a 
customer  off  right;  to  have  a  letter  of  thanks  written 
through  the  credit  department  when  the  account  is 
opened.  A  credit  man  does  not  lose  any  of  his  effective 
hold  on  a  customer  by  this  method,  but  he  does  instill 
a  feeling  of  good  will  at  the  very  inception  of  doing 
business.  First  impressions  are  lasting,  and  if  the  cus- 
tomer's first  conception  of  the  credit  department  of  the 
house  is  good,  it  goes  a  long  way  towards  keeping  that 
feeling  alive  and  active.  Sometimes  as  part  of  the  sales 
campaign,  a  postcript  on  the  credit  department  or  col- 
lection letters  to  the  effect  that  prices  on  a  certain  ar- 


56  MERCANTILE    CREDITS   AND   COLLECTIONS 

tide  are  likely  to  go  up,  not  only  brings  in  business,  but 
makes  the  customer  feel  closer  to  the  credit  man.  A 
friendly  letter  to  a  customer  who  seems  to  be  over- 
stocked, suggesting  that  some  campaign  should  be 
inaugurated  to  turn  this  stock  into  liquid  capital  is 
valuable.  Letters  like  this  should  not  be  sent  in  a 
spirit  of  criticism,  but  in  a  spirit  of  helpfulness  and  in  a 
spirit  which  is  meant  to  be  of  assistance,  and  not  of  a 
critical  character.  Likewise,  if  a  large  part  of  the  cus- 
tomer's assets  is  invested  in  slow-moving  accounts, 
helpful  suggestions  as  to  the  method  of  conducting  a 
collection  campaign  are  very  beneficial.  It  is  a  notable 
fact  that  credit  men  who  have  succeeded  to  the  greatest 
extent  in  holding  the  good  will  of  their  customers,  get 
their  money  first,  and  also  know  first  of  any  pending 
disturbance  in  the  customer's  affairs,  and  are  enabled  to 
get  security,  while  other  less  fortunate  concerns  whose 
credit  men  have  not  cultivated  the  proper  co-operation 
of  the  customer  are  left  to  face  a  loss.  When  this  friendly 
spirit  has  been  highly  developed,  customers  will  come 
to  a  credit  man  with  their  troubles  for  assistance  and 
advice,  and  receive  good,  sound  advice  from  an  ex- 
perienced business  man,  which  engenders  in  them  last- 
ing faith,  and  which  helps  your  business  relations  with 
them  from  every  angle. 

Wherever  possible  it  is  also  desirable  for  credit  men 
to  co-operate  with  banks.  While  a  bank  is  usually 
under  obligation  to  its  customers  to  give  information 


CO-OPERATION   AND   DIPLOMACY  57 

concerning  its  depositors  who  refer  to  them,  the  informa- 
tion is  often  more  complete  if  the  credit  department  is 
known  to  the  bank  in  an  agreeable  way.  Banks  usually 
give  out  more  information  than  they  seek,  and  in  send- 
ing an  inquiry  to  a  bank  by  mail  a  much  better  feeling 
is  established  if  a  stamped  and  addressed  return  en- 
velope accompanies  the  inquiry.  Inquiry  blanks  sent 
to  financial  institutions  should  also  state  that  the  favor 
will  be  gladly  reciprocated  whenever  opportunity  offers, 
so  that  if  this  bank  later  requires  some  information 
on  this  customer  from  a  commercial  standpoint,  the 
bank  will  understand  that  you  will  furnish  them  as 
readily  with  information  as  they  have  furnished  it  to 
you. 

This  same  theory  applies  to  other  merchants  from 
whom  you  seek  information.  It  is  a  good  thing  for 
business  interests  that  the  old  feeling  of  prejudice  that 
information  regarding  a  customer  was  strictly  con- 
fidential and  should  not  be  given  to  a  competitive 
house  has  disappeared.  Very  few  concerns  are  now 
so  narrow  that  they  will  undertake  to  get  information 
for  the  benefit  of  their  sales  department  through  their 
credit  department.  If  this  practice  is  followed  your 
source  of  information  will  soon  be  cut  off,  but  if  the 
information  concerning  the  customer's  account  is  inter- 
changed openly,  freely,  and  in  a  broadminded  way, 
and  not  used  for  the  purpose  of  taking  trade  from  your 
informant,  you  not  only  have  a  valuable  source  of  in- 


58  MERCANTILE   CREDITS   AND   COLLECTIONS 

formation,  but  your  danger  of  losses  is  less.  There  is  a 
difference  of  opinion  as  to  whether  or  not  ledger  in- 
formation should  be  exchanged  between  credit  men  of 
competitive  houses,  but  the  feeling  on  this  broadminded 
practice,  previously  regarded  with  considerable  preju- 
dice, has  now  practically  disappeared,  the  exceptions 
to  the  rule  being  very  rare. 

In  cities  where  credit  men  are  organized  into  a  local 
credit  association,  ledger  information  is  usually  gath- 
ered together  by  this  association  and  the  total  amount 
of  a  customer's  obligations  are  shown,  together  with 
the  total  amount  past  due,  and  various  expressions  of 
opinion  concerning  the  debtor. 

This  same  spirit  of  co-operation  should  be  exhibited 
when  creditors'  meetings  are  called,  for  it  is  useless  for 
one  unsecured  creditor  to  attempt  to  gain  an  advantage 
over  the  other,  and  it  is  usually  better  for  secured 
creditors  to  grant  an  extension,  to  make  it  easier  for 
the  unsecured  creditors  to  realize  on  their  claims,  so 
long  as  the  rights  of  the  secured  creditors  are  not  vio- 
lated or  prejudiced,  nor  their  security  lessened  or  im- 
paired. At  the  next  creditors'  meeting  you  may  find 
yourself  with  an  unsecured  claim,  and  you  may  be 
urging  an  extension  on  behalf  of  the  debtor  to  enable 
him  to  work  out  his  affairs  and  pay  his  debts  from  se- 
cured creditors  who  were  unsecured  at  the  last  meeting 
of  some  other  important  debtor. 

In  this  connection  it  is  proper  to  say  that  extensions 


CO-OPERATION   AND   DIPLOMACY  59 

should  only  be  granted  for  some  consideration,  and  it  is 
a  very  good  policy  to  require  full  information  from  a 
customer  seeking  an  extension,  and  the  following  blank 
is  a  great  help  in  obtaining  necessary  facts  and  tends 
to  discourage  the  promiscuous  requests  for  additional 
time.  The  blanks  should  be  in  regular  printed  form, 
and  one  should  be  sent  to  each  seeker  of  an  extension 
with  a  letter  asking  the  customer  to  fill  it  out,  stating 
the  application  will  be  carefully  considered  as  soon  as 
received.  It  is  distasteful  to  fill  out  a  blank  and  many 
customers  will  pay  rather  than  go  through  all  this  for- 
mality, especially  if  they  fear  they  cannot  show  some 
adequate  reason  for  not  paying. 

APPLICATION  FOR  EXTENSION  OF  TIME  OF  PAYMENT 

(Place) 

19    (Date) 

Jno  Doe  &  Co., 


Gentlemen : 

hereby  apply  to  you  for  an  extension  of  time  within 

(7  or  We) 

which  to  pay obligation  to  you,  amounting  to 

{My  or  Our) 

dollars  ($ )  due 

19... 

request  that  the  time  of  payment  of  aforesaid  obligation 

(7  or  We) 
be  extended  by  you  to 19 . . ,  and  as  a  considera- 


60  MERCANTILE   CREDITS   AND    COLLECTIONS 

tion  therefor will,  if  said  extension  is  granted  by  you,  pay 

(7  or  We) 

dollars   ($ )  on 

191 . ,  in  part  payment,  and  furnish  you  with  the  following  security, 
to  cover  the  balance,  to  wit: 


The  reason can  not  pay  the  obligation  at  maturity  is 

(7  or  We) 


It  is  understood  by that  no  agreement  on  your  part  to 

{Me  or  Us) 
extend  the  time  of  pajanent  shall  be  binding  on  you  until  you  have 
determined  that  the  aforesaid  security  above  tendered  is  satis- 
factory to  you. 

Very  truly  yours. 


One  of  the  most  perplexing  problems  a  credit  man 
encounters  is  the  problem  of  declining  an  order.  In 
the  first  place,  there  is  a  desire  to  fill  the  order  if  pos- 
sible after  it  has  once  been  received,  and  sometimes  it 
is  difficult  to  come  to  a  decision  as  to  whether  or  not  the 
order  should  actually  be  declined.  Even  though  all  the 
information  on  the  subject  of  inquiry  has  been  veri- 
fied, the  statement  of  the  prospective  customer's  assets 
and  liabilities  and  general  credit  standing  sometimes 
presents  a  complex  situation.     A  slight  turn  in  the 


CO-OPERATION   AND   DIPLOMACY  61 

customer's  affairs  might  enable  him  to  take  care  of  his 
obhgations  promptly,  if  that  slight  turn  is  favorable, 
and  on  the  other  hand  a  slightly  unfavorable  turn  may 
seriously  embarrass  him,  if  his  affairs  are  seemingly 
at  the  turning  point. 

It  should  be  remembered  that  most  seekers  of  credit 
resent  the  inference  that  they  are  not  responsible.  Due 
to  their  own  lack  of  analysis,  sometimes,  they  actually 
beheve  that  they  are  amply  responsible.  Their  in- 
tentions are  good,  but  they  do  not  realize  their  own 
pending  danger.  If  you  have  refused  to  fill  an  order 
at  a  time  when  their  condition  does  not  warrant  your 
extending  them  credit,  they  may  later  recoup  them- 
selves and  be  in  good  credit  standing,  and  then  when 
your  salesman  or  the  house  solicits  their  business  they 
will  promptly  state  what  they  think  of  your  credit  man. 
Some  debtors  even  become  bitter  and  go  out  of  their 
way  to  influence  others  not  to  buy  from  you  if  you  have 
questioned  their  credit. 

It  is  not  always  possible  to  decline  an  order  and  still 
hold  the  good  will  of  the  debtor,  but  it  is  essential  to 
hold  his  good  will  wherever  possible.  Care  should 
therefore  be  exercised  to  see  that  letters  declining  an 
order  are  not  abrupt.  Your  letter  should  be  in  an 
easy,  flowing  style,  and  all  the  rough  edges  should  be 
trimmed  off.  It  is  not  advisable  to  make  the  plain 
statement  that  information  on  the  prospect's  financial 
standing  is  not  satisfactory,  but  the  credit  man's  letter 


62  MERCANTILE   CREDITS   AND    COLLECTIONS 

should  express  thanks  for  the  business.  Then  the  power 
of  suggestion  should  be  used  by  stating  that  pending 
the  usual  investigations,  which  might  cause  some  delay, 
your  suggestion  would  be  that  the  buyer  take  advantage 
of  the  cash  discount  and  get  prompt  shipment.  If  he 
knows  that  his  credit  is  somewhat  questionable,  he 
will  respond  promptly,  just  to  show  you  that  he  can 
pay,  and  he  is  also  prompted  by  the  thought  that  by 
prompt  payment  he  will  actually  establish  his  credit 
with  the  house.  Then  the  salesman  can  be  told  to 
cease  soliciting  business  from  that  particular  customer, 
so  that  you  will  not  have  to  decline  his  orders.  It  is 
better  not  to  take  an  order  at  all  than  to  take  it  and  then 
decline  it.  This  is  especially  so  if  either  the  salesman 
or  credit  man  know  in  advance  that  the  order  would 
have  to  be  rejected  even  if  it  was  taken.  That  is  why 
it  is  desirable  for  the  credit  and  sales  department  to 
co-operate.  The  particular  order  that  you  are  com- 
pelled to  decline  probably  would  not  have  been  taken 
if  you  had  given  the  salesman  a  list  of  good  merchants 
in  a  town  instead  of  leaving  it  to  the  salesman  to  solicit 
business  wherever  he  thought  it  was  possible.  The 
same  order  might  have  been  taken  from  a  good  credit 
risk  as  well  as  from  a  poor  one  with  the  same  amount 
of  energy  and  money  expended,  and  there  would  be 
more  pep  and  enthusiasm  left  in  the  salesman,  as  de- 
clining an  order  is  always  bound  to  dampen  his  spirits. 
Many  doubtful  orders  can  be  converted  into  good  ones 


CO-OPERATION   AND    DIPLOMACY  63 

and  the  unpleasantness  of  having  actually  to  decline 
the  order  or  of  having  a  ''sorehead"  on  your  Ust  can 
be  avoided. 

It  is  also  essential  to  keep  the  good  will  of  your  sales- 
men, even  though  you  are  frequently  compelled  to  de- 
cline orders.  Some  salesmen  seem  to  have  the  unhappy 
faculty  of  taking  a  lot  of  business  from  poor  credit 
risks.  In  many  instances  this  is  due  to  lack  of  proper 
instructions  and  advice  from  the  credit  man  and  due 
to  the  lack  of  business  training  the  salesman  has  had. 
For  even  though  a  credit  man  may  have  been  thought- 
less, or  overlooked  instructing  or  advising  a  salesman, 
some  of  them  naturally  have  better  judgment  than  others 
and  the  ones  with  the  poor  judgment  turn  in  the  most 
orders  from  the  poorest  credit  risks.  This  is  usually  the 
experience  of  a  new  salesman.  He  starts  out  like  a  new 
broom  with  the  intention  of  making  a  clean  sweep  of 
the  whole  territory  and  takes  every  order  in  sight.  He 
thinks  he  is  doing  a  land  office  business  in  garnering  in 
a  lot  of  orders  that  the  better  trained  salesman  of  your 
organization  would  not  have  taken.  On  his  first  trip 
or  two,  he  bites  at  all  the  leftovers,  and  this  is  partic- 
ularly true  if  he  has  been  started  out  without  proper 
guidance.  At  the  end  of  the  trip  his  superior  may  re- 
mark on  the  small  amount  of  business  he  has  turned  in, 
and  his  answer  usually  is  that  he  obtained  plenty  of  busi- 
ness but  the  credit  man,  with  all  his  wisdom,  took  de- 
light in  turning  his  orders  do^vn. 


64  MERCANTILE   CREDITS   AND    COLLECTIONS 

But  even  after  a  salesman  has  been  throughly  coached 
and  throughly  advised  and  instructed  as  to  what  is  ex- 
pected of  him,  and  even  after  he  has  been  furnished  with 
a  list  of  desirable  credit  risks  in  the  community,  some 
orders  will  creep  in  that  must  be  declined.  Maybe 
since  the  rating  of  the  debtor  was  made  up,  his  affairs 
have  taken  a  turn  for  the  worse  and  at  the  time  the 
order  is  received  by  the  house  it  is  not  accepted.  In 
some  lines  of  business  it  is  not  always  possible  to  fur- 
nish the  salesmen  with  a  list  of  good  credit  risks.  If 
business  is  not  transacted  through  merchants  or  dealers, 
the  class  of  buying  public  is  usually  unknown  to  the 
credit  man.  In  that  case,  however,  compelling  the 
salesman  to  use  the  Salesmen's  Credit  Blank  will  be 
very  helpful  in  retaining  his  good  will,  as  then  he  is 
bound  to  be  careful  and  gain  experience  enough  to  see 
whether  or  not  his  customer  stands  well.  The  salesman 
should  always  be  told  the  reason  why  the  order  has  been 
refused,  so  he  will  understand  that  the  reason  is  a  good 
one.  It  is  a  very  good  practice,  if  conditions  of  the  busi- 
ness permit,  for  the  credit  man  to  go  on  the  territory 
once  in  a  while,  not  only  to  analyze  conditions  first 
hand,  but  to  have  the  opportunity  of  being  with  the 
salesman  when  he  closes  an  order,  so  that  the  method 
of  going  about  the  getting  of  credit  information  can  be 
observed  by  the  salesman  in  the  transaction,  each  move 
being  directed  by  the  credit  man  himself.  If  you  both 
understand  each  other,  the  salesman  will  not  feel  that 


CO-OPERATION   AND   DIPLOMACY  65 

you  are  going  to  kill  his  prospect  before  he  gets  a  chance 
to  sell  him. 

It  is  not  necessary  to  cater  to  the  salesman,  as  you 
can  still  command  his  respect,  and,  if  necessary,  be 
strict  in  credit  matters,  and  yet,  withal,  have  him  feel 
that  you  are  co-operating  with  him,  and  when  that 
feeling  is  instilled  you  will  keep  his  good  will  even  though 
your  duty  compels  you  to  decline  orders  received  from 
him  that  he  may  in  the  first  place  have  thought  were 
gilt-edged. 


CHAPTER  VII 

CONVEKTING  DOUBTFUL  ORDERS  INTO  GOOD  ONES  AND 
THE  USE  OF  GUARANTEES 

Much  resourcefulness  is  required  in  dealing  with 
doubtful  orders.  In  the  shape  they  are  received  it  may 
not  be  possible  to  fill  them  without  risk  of  incurring 
loss.  In  a  few  institutions  the  demand  for  product 
manufactured  and  sold  is  so  great  the  credit  man  may 
be  independent,  and  even  drastic ;  he  may  insist  on  hav- 
ing the  cash  in  advance,  knowing  that  he  cannot  pos- 
sibly be  criticised  for  declining  sales,  because  the  de- 
mand is  so  active  that  the  same  goods  can  be  readily 
sold  to  some  well-rated  concern.  This  is  usually  a  short- 
sighted policy,  however,  because  there  are  very  few 
institutions  who  will  always  be  oversold;  the  day  may 
come  when  their  production  is  greater  than  the  A-1 
rated  concerns  will  absorb,  and  most  sellers  find  com- 
petition such  that  they  cannot  be  so  independent,  ex- 
cept only  in  abnormal  times.  The  cost  of  getting  the 
business  has  already  been  expended.  For  this  reason, 
particularly,  it  is  desirable  to  try  and  convert  a  doubt- 
ful order  into  one  that  is  acceptable.  Many  orders 
which  cannot  be  approved  in  the  shape  in  which  they 
are  received  can  be  so  converted.    One  method  is  by  the 

66 


DOUBTFUL   ORDERS  67 

use  of  suggestion;  a  carefully  worded  diplomatic  letter, 
requiring  but  little  more  time  than  a  mere  formal  letter 
notifying  the  customer  the  order  cannot  be  approved, 
will  often  result  in  saving  the  business,  by  causing  the 
customer  to  remit  the  amount  of  the  order  after  de- 
ducting the  cash  discount. 

It  is  of  advantage  to  the  credit  man  to  know  how 
badly  the  goods  are  required  by  the  buyer,  and  how 
soon  he  could  get  them  elsewhere  if  the  order  was  de- 
clined; for  this  information  will  enable  him  to  deter- 
mine whether  it  is  wise  to  suggest  remitting,  less  cash 
discount;  remitting  to  avoid  delay  in  looking  up  the 
customer's  standing;  or  whether  his  suggestion  should 
be  in  the  form  of  furnishing  security. 

The  following  form  of  letter  has  been  used  quite 
frequently  by  the  author  with  gratifying  results.  It 
can  be  changed  to  suit  the  individual  diction  of  the 
credit  man,  or  can  be  rearranged  to  suit  different  cir- 
cumstances, but  the  thought  conveyed  is  the  main 
element  in  producing  the  desired  effect  on  your  cus- 
tomer. 

Chicago, ,  19. . . 

U.  S.  Consumers  Co., 

Chicago,  111, 
Dear  Sirs : — 

Through  our  salesman,  Mr.  Brown,  we  have  been  favored  with 

your  valued  order,  amounting  to  $ ,  which  is  having  our 

attention,  and  for  which  kindly  accept  our  thanks. 


68  MERCANTILE   CREDITS   AND    COLLECTIONS 

From  authorities  usually  consulted  in  such  matters  we  seem  to  be 
unable  to  get  sufficient  information  to  approve  the  order  promptly, 
and,  therefore,  rather  than  delay  shipment,  we  take  the  liberty  of 

suggesting  that  you  kindly  remit  the  amount,  I ,  on  which 

you  are  entitled  to  a  cash  discount  of  $ ,  wliich  will  avoid 

any  further  unfortunate  delay. 

We  thank  you  in  advance  for  complying  with  tliis  suggestion, 
and  know  you  will  realize  it  is  made  in  order  that  we  may  give  you 
prompt  service. 

Yours  truly, 

Please  observe  that  while  this  letter  is  not  too  long 
to  be  burdensome  the  ''stmg"  is  pretty  well  removed. 
In  starting  to  read  the  letter  your  customer's  attention 
is  drawn  to  the  fact  that  his  order  is  having  attention 
and  he  is  pleased  to  have  your  thanks  for  the  business. 
If  you  allow  cash  discounts  in  your  business,  the  sug- 
gestion that  he  remit  and  take  the  cash  discount  is 
usually  accepted,  unless  the  amount  involved  is  beyond 
your  customer's  reach.  Furthermore,  he  is  glad  to 
know  that  you  have  taken  the  matter  up  with  him 
promptly  so  as  not  to  delay  his  order,  and,  lastly,  he 
is  impressed  by  the  fact  that  his  first  order  gets  prompt 
attention  and  that  you  are  trying  to  give  him  prompt 
service  even  before  he  has  established  his  credit.  It  is 
very  rarely  that  a  customer  will  resent  this  form  of 
letter,  the  only  exception  being  temperamental  and 
over-expanded  mdividuals  or  those  who  are  involved 
or  living  beyond  their  means. 

If  your  analysis  of  the  situation  indicates  that  it 


DOUBTFUL   ORDERS  69 

might  be  unwise  to  ask  for  a  remittance,  a  suggestion 
can  be  made  that  security  be  furnished,  though  it  is 
difficult  to  outline  any  method  or  plan  by  which  se- 
curity of  this  character  can  be  obtained  by  mail.  The 
letter  requesting  such  security  must  necessarily  be 
prompted  and  phrased  according  to  existing  circum- 
stances and  conditions,  which  are  different  in  almost 
every  case.  In  arranging  a  large  line  of  credit,  however, 
it  is  frequently  desirable  to  take  some  satisfactory  real 
estate  or  chattel  mortgage  security  if  there  is  any  doubt 
about  the  financial  standing  of  the  buyer.  In  large 
matters  of  this  kind  usually  a  credit  man  does  not 
imdertake  to  obtain  the  security  by  mail,  but  either 
goes  in  person  to  the  customer  or  sends  a  representative 
from  his  department,  or  if  the  salesman  has  been  suffi- 
ciently trained  he  can  be  instructed  as  to  how  to  ap- 
proach the  buyer  and  arrange  for  security. 

Frequently,  however,  corporations,  especially  specula- 
tive corporations  having  but  a  limited  amount  of  assets 
(such  as  undeveloped  mines  and  oil  companies),  are 
backed  by  men  whose  individual  standing  is  satis- 
factory. In  this  case  it  is  usually  possible  to  convert 
a  doubtful  order  from  such  speculative  concerns  into 
a  good  one  by  obtaining  the  personal  guarantee  of  re- 
sponsible individuals  interested  in  the  venture.  It  is 
true  that  men  of  standing  hesitate  to  accept  personal 
liability  in  corporate  matters,  but  if  the  matter  is  pre- 
sented to  them  in  the  proper  light  very  frequently  such 


70  MERCANTILE   CREDITS   AND    COLLECTIONS 

guarantees  can  be  arranged.  One  very  successful  argu- 
ment is:  "How  can  you  expect  us  to  take  the  risk  if 
you,  who  are  in  control  of  the  corporation's  affairs  are 
unwilling  to  take  the  risk?"  And  it  is  a  fact  if  a  re- 
sponsible individual  has  control  of  the  destiny  of  a 
corporation  and  is  unwilling  to  lend  that  corporation 
strength,  after  assuring  the  seller  that  bills  will  be 
promptly  paid  as  long  as  he  is  connected  with  it,  it  is 
no  fit  subject  for  a  credit  man  to  take  a  chance  on. 

Frequently  responsible  relatives  will  guarantee  ob- 
ligations of  an  individual,  and  even  the  landowner  will 
guarantee  the  obligation  of  some  lessee  who  is  improv- 
ing his  property.  It  is  really  necessary  to  know  just 
what  personal  relationships  exist  in  order  to  know  who 
to  approach  for  a  guarantee  or  who  should  be  suggested 
as  a  guarantor  to  the  buyer. 

As  to  the  use  of  a  sufficient  guarantee  covering  a  new 
account,  the  following  form  has  been  recommended  by 
the  National  Association  of  Credit  Men. 

GUARANTEE  OF  PAYMENT  TO 

19... 

U.  S.  Consumers  Co., 

Chicago,  111. 
Dear  Sirs: — 

Please  sell  and  deliver  to 

(Name  of  party  getting  the  merchandise) 
on  your  usual  credit  terms,  such  goods,  wares  and  merchandise  as 

(Name  of  party  getting  the  merchandise) 


DOUBTFUL   ORDERS  71 

from  time  to  time  may  select,  and  in  consideration  thereof  I  or  we 
hereby  guarantee  and  hold  myself  or  ourselves  personally  respon- 
sible severally  and  jointly  for  the  payment  at  maturity  of  the  pur- 
chase price  of  all  such  goods,  wares  and  merchandise  so  sold  and  de- 
livered, whether  evidenced  by  open  account  or  note.  I  or  we  hereby 
waive  notice  of  acceptance  thereof,  amount  of  sales,  dates  of  ship- 
ment or  deUvery,  and  notice  of  default  in  pa3anent.  I  or  we  further 
waive  the  requirement  of  legal  proceedings  against  the  said  pur- 
chaser. 

This  is  intended  to  be  a  continuing  guarantee,  applying  to  all 

sales  made  by  you  to 

{Name  of  party  getting  the  merchandise) 
from  this  date  until  the  same  is  revoked  by  me  or  us  in  writing. 

WITNESS  my  hand  and  seal  this day  of 19. .. 


It  is  well  to  call  attention  to  the  fact  that  in  most 
states  the  courts  will  hold  that  a  guarantee  in  writing 
promising  to  make  good  the  default  of  another  is  valid 
only  when  there  has  been  a  sufficient  consideration. 
Of  course,  if  the  guarantee  is  given  before  the  goods  are 
shipped,  it  follows  that  the  consideration  was  ample, 
in  that  the  principal  obtained  credit  and  this  is  always 
ample  consideration.  If  the  guarantee  in  writing  is 
taken  after  a  debt  has  been  incurred  there  is  a  question 
as  to  its  validity  in  many  states  unless  the  consideration 
was  sufficient,  and  a  sufficient  consideration  usually 
is  an  agreement  to  extend  the  obligation,  or  to  forbear 


72  MERCANTILE   CREDITS   AND    COLLECTIONS 

to  sue,  or  by  extending  additional  credit,  making  that 
a  part  of  the  consideration. 

It  is  often  the  tendency  of  a  guarantor,  feeling  that 
he  has  had  no  direct  benefit  from  the  transaction,  to 
seek  to  evade  payment  when  calamity  befalls  his  prin- 
cipal. Therefore,  in  opening  up  a  new  account  on  which 
credit  is  extended  by  reason  of  your  faith  in  the  guar- 
antor the  foregoing  form  of  protection  should  be  used. 

The  following  guarantee  was  held  to  be  insufficient: 

"In  regard  to  A's  account,  will  say  that  you  need  not  worry  about 
this.  It  may  be  possible  that  I  will  take  the  stock  and  close  it  out 
for  him.  He  is  not  insolvent  but  has  simply  got  overstocked  and 
will  be  a  little  slow  in  pa3dng  up,  but  I  will  see  that  you  are  paid." 

In  the  absence  of  legal  advice,  under  the  circum- 
stances existing  in  this  particular  case,  any  reasonable 
man  would  consider  that  the  guarantor  was  liable;  for 
in  this  particular  case  both  the  principal  and  the  guar- 
antor were  ordering  goods  concurrently  on  the  same 
venture  and  at  tunes  the  principal  paid  and  at  other 
times  the  guarantor  paid,  but  there  was  no  guarantee 
of  payment  taken  when  the  accoimt  was  opened.  How- 
ever, when  the  principal  became  lax  in  payment  the 
guarantor  sent  in  a  letter  in  the  above  phraseology,  in 
the  belief  that  the  creditor  would  not  further  press  the 
obligation  as  the  guarantor  was  amply  responsible. 
The  principal  filed  a  petition  in  bankruptcy.  It  was 
discovered  that  the  guarantor  was  his  largest  creditor, 


DOUBTFUL   ORDERS  73 

and  the  credit  man  was  advised  that  it  was  doubtful 
if  he  could  recover,  as  he  had  not  entered  into  any  agree- 
ment to  forbear  to  sue,  nor  did  he  agree  to  extend  the 
time  of  payment,  so  that  there  was  no  definite  considera- 
tion for  the  guarantee.  The  credit  man  received  a 
letter,  accepted  it  in  good  faith  and  relied  upon  it. 

These  facts  are  stated  so  that  a  credit  man  will 
reahze  the  importance  of  seeing  that  there  is  ample 
consideration  for  the  acceptance  of  a  guarantee  not 
only  when  an  account  is  opened  (and  this  is  usually 
always  sufficient  in  that  credit  is  extended  to  the  prin- 
cipal), but  also  to  see  that  the  consideration  for  the 
acceptance  of  a  guarantee  on  an  obligation  already  owing 
is  sufficient,  and  it  is  recommended  that  a  promissory 
note  with  a  definite  date  of  maturity  be  accepted  in 
such  cases,  with  the  guarantor  as  endorser.  This  pro- 
cedure avoids  any  question  of  consideration.  Where  it 
is  not  possible  to  get  a  note  from  the  debtor  with  the 
guarantor's  endorsement,  the  following  form  of  guar- 
antee may  be  safely  used : 

GUARANTEE  OF  PAYMENT  OF  ACCOUNT  OWING  TO. . . . 

19.. 

John  Doe  &  Co., 

Gentlemen : 

In  consideration  that ,  a  corporation  duly 

organized  and  existing  under  the  laws  of  the  State  of , 

will  extend  the  time  of  payment  of Dollars, 


74  MERCANTILE   CREDITS   AND    COLLECTIONS 

now  due  it  from to  the 

day  of ,  A.  D.  19 . . .    I  or  we, 

severally  and  jointly,  hereby  guarantee  the  payment  of  said  sum  on 

said  last  mentioned  date  by 

without  requiring  any  demand  or  notice  of  default,  and  I  or  we  agree 
that  any  extension  may  be  granted  or  additional  security  taken,  or 
additional  security  taken  surrendered,  at  any  time  without  notice  or 
affecting  my  or  our  liability  hereunder.  My  or  our  liability,  how- 
ever, is  limited  to Dollars, 

together  with  interest  at  the  legal  rate  per  annum  until  paid,  with 
all  costs,  attorneys'  fees  and  expenses  that  shall  arise  from  enforc- 
ing collection  of  said  account. 

WITNESS  my  or  our  signature .  .  and  seal . .  this 

day  of ,A.  D.  19... 

(seal) 

(seal) 

(seal) 

The  co-operation  of  the  salesman  is  a  great  help  in 
dealing  with  orders  of  this  kind;  and  endeavoring  to 
put  an  order  into  acceptable  shape  stimulates  him  to 
work  closely  with  the  credit  department.  Send  the 
salesman  a  copy  of  the  letter  to  his  new  customer. 
He  may  be  able  to  give  valuable  suggestions  to  assist 
in  handling  the  matter.  And  he  will  be  more  deeply 
impressed  with  the  necessity  of  furnishing  full  informa- 
tion on  new  customers. 

Efforts  to  convert  doubtful  orders  into  good  ones  are 
profitable  and  a  lai-ge  volume  of  business  can.  be  saved 
during  the  course  of  a  year. 


CHAPTER  VIII      . 

HOW  TO   READ   A   FINANCIAL   STATEMENT 

It  is  impossible  to  lay  down  any  specific  rule  as  to 
how  a  financial  statement  should  be  analyzed,  as  diver- 
sified classes  of  business  require  different  financial 
operations,  so  that  only  general  statements  may  be 
made  as  to  how  to  analyze  such  statements.  The 
analysis  of  a  statement  of  an  individual  must  neces- 
sarily differ  from  that  which  would  be  applied  to  a  cor- 
poration. 

In  the  case  of  an  individual,  his  age  should  be  care- 
fully considered;  for  instance,  a  man  35  or  40  years  old 
would  naturally  have  better  business  judgment  than  a 
young  man  21  years  old;  a  man  40  years  old  may  have 
had  15  years'  experience  in  his  particular  business,  and 
if  experienced  in  the  line  then  engaged  in  would  be  a 
better  credit  risk  than  a  young  man  21  years  old  who 
might  have  more  capital  but  less  experience  and  less 
mature  judgment. 

In  the  case  of  a  corporation,  the  experience  and  age 
of  the  officers,  directors,  or  those  managing  the  business 
is  an  important  factor  to  the  same  extent;  and  the  age 
of  the  corporation  itself  is  important;  for  instance,  a 
corporation  just  organized,  having  to  face  all  the  es- 

75 


76  MERCANTILE    CREDITS   AND    COLLECTIONS 

tablished  competition,  presents  some  uncertainty  to  the 
credit  man  as  against  an  old-established  corporation 
who  have  already  demonstrated  their  success. 

One  of  the  next  things  to  do  is  to  segregate  the  quick 
assets  and  the  quick  liabilities.  Quick  assets  usually 
consist  of  cash,  good  accounts  and  notes  receivable,  raw 
materials  or  finished  product,  marketable  stocks  or 
bonds,  and  such  other  sundry  items  as  may  be  readily 
converted  into  money.  Quick  liabilities  consist  of  cur- 
rent accounts  payable,  notes  to  the  bank  or  to  others 
for  borrowed  money,  and  such  other  sundry  items  as 
represent  an  obligation  payable  on  demand  or  in  the 
very  near  future.  Slow-moving  or  dormant  assets 
consist  of  real  estate — whether  occupied  for  business 
purposes  or  not,  manufacturing  plants,  buildings, 
and  such  other  sundries  as  cannot  be  readily  converted 
into  cash,  or  if  converted  must  necessarily  be  heavily 
sacrificed  to  convert  at  all.  Deferred  liabilities  against 
these  items  are  usually  mortgages  on  real  estate  or 
plant,  bonded  debt,  or  any  other  funded  long-time  ob- 
ligation. 

By  making  this  segregation  of  quick  assets  and  quick 
liabilities  as  against  slow-moving  assets  and  deferred 
Habilities  it  is  easier  to  determine  if  the  applicant  will 
be  able  to  meet  obligations  at  maturity.  Many  a  con- 
cern has  become  financially  embarrassed  because  of  too 
heavy  an  investment  in  real  estate,  which  capital  if  not 
so  invested  would  have  enabled  them  to  make  a  greater 


READING   A   FINANCIAL   STATEMENT  77 

profit  and  pay  their  obligations  more  promptly  had 
they  rented  the  real  estate;  and  if  the  real  estate  is 
encumbered  with  a  mortgage,  or  the  plant  has  a  bonded 
debt,  and  the  quick  liabilities  equal  or  exceed  the  quick 
assets  the  time  will  come  when  that  institution  must 
have  an  extension  or  seek  new  capital.  In  this  con- 
nection it  is  advisable  to  ascertain  if  a  large  proportion 
of  notes  have  been  rediscounted  at  the  bank,  because 
the  contingent  liability  of  such  rediscounts,  especially 
if  credits  have  been  laxly  granted,  may  seriously  em- 
barrass the  applicant  for  credit  in  case  the  maker 
defaults  on  the  notes  so  endorsed  or  discounted. 

There  is  a  wide  difference  of  opinion  among  credit 
men  as  to  what  is  the  proper  proportion  of  assets  to 
liabilities,  and  no  fixed  rule  has  ever  been  established 
or  recommended  by  any  organization  of  credit  men, 
though  every  well-seasoned  credit  man  has  fixed  in 
his  own  mind  some  proportion  beyond  which  it  is 
dangerous  to  go.  I  have  known  credit  men  who  would 
not  as  a  rule  extend  credit  if  the  total  liabilities  equalled 
50%  of  the  total  assets;  others  will  extend  credit  if  the 
total  liabilities  equal  65%  of  the  assets,  and  in  some 
special  lines  of  business  credit  men  may  be  found  who 
will  even  exceed  that  limit  if  the  turnover  is  quick, 
the  terms  short  and  the  concern  has  an  established 
reputation  for  making  prompt  payments.  Every  credit 
man  should,  however,  analyze  the  business  he  is  en- 
gaged in  and  fix  in  his  mind  some  proportion  of  liabil- 


78  MERCANTILE   CREDITS   AND    COLLECTIONS 

ities  to  assets  beyond  which  it  is  dangerous  to  extend 
credit. 

It  is  well  to  remember  too  that  every  business  re- 
quires a  certain  amount  of  capital,  especially  liquid 
capital,  and  if  the  owners  of  the  business  have  not 
furnished  enough  capital  they  are  going  to  try  to  use 
some  of  yours  and  the  capital  of  their  other  creditors 
to  finance  the  business  until  such  time  as  the  profits 
have  accumulated  and  their  capital  thereby  increased 
to  such  a  point  that  the  business  can  be  properly  con- 
ducted. Also,  if  the  bank  loans  have  been  constant, 
or  if  they  have  been  increasing,  an  analysis  may  show 
that  the  concern  has  always  relied  on  renewals  at  the 
bank,  and  have  done  so  for  such  a  period  of  time  that 
they  regard  the  loan  from  the  bank  as  a  part  of  their 
fixed  capital. 

Distinction  should  be  drawn  between  those  concerns 
carrying  a  constant  line  of  credit  at  the  bank  and  those 
who  carry  even  heavy  loans  at  certain  seasons  to  conduct 
their  business  but  who  liquidate  those  loans  at  certain 
seasons  when  the  tide  turns ;  for  instance,  a  farmer  will 
borrow  heavily  from  the  bank  for  various  purposes  to 
produce  a  crop,  but  when  the  crop  has  been  produced 
and  marketed  the  loan  is  paid  off.  On  the  other  hand, 
if  a  mercantile  institution  borrows  money  from  the 
bank  and  when  the  height  of  its  season  arrives  and  it 
should  have  made  its  collections  and  it  has  not  paid 
off  the  loan,  there  is  great  danger  that  the  loan  may 


READING  A   FINANCIAL   STATEMENT  79 

be  considered  or  treated  by  the  borrower  as  part  of  his 
fixed  capital,  and  some  day  when  the  bank  wants  its 
money,  which  they  surely  will,  and  begin  crowding  the 
borrower  unbeknown  to  the  other  creditors,  that  cus- 
tomer begins  to  take  a  little  longer  time  on  his  current 
obligations  in  the  hope  that  he  can  pay  off  his  bank  loan, 
and  may  even  succeed  in  paying  the  loan  off,  thus  leav- 
ing the  creditors  carrying  the  burden  that  the  bank  has 
been  carrying. 

Another  important  thing  to  watch  is  to  see  that  loans 
have  not  been  heavy  from  relatives,  or  that  individuals 
of  a  corporation  have  not  too  heavily  advanced  per- 
sonal funds  payable  on  demand.  They  are  in  a  position 
to  secure  themselves,  seeing  pending  dangers  first, 
and  have  every  advantage  over  the  ordinary  creditor, 
and  heavy  loans  made  to  a  corporation  by  its  stock- 
holders, or  by  members  of  the  family  of  an  individual 
owning  the  business,  should  be  regarded  with  suspicion. 

Intangible  assets  of  unknown  quantity,  such  as  pat- 
terns, good  will,  unsold  treasury  stock,  and  assets  of 
like  character  should  be  practically  disregarded  as  an 
asset  in  analzing  financial  statements. 

Another  thing  to  be  considered  carefully  is  whether 
your  customer  is  conservative  or  speculative.  A  specu- 
lator may  by  a  long  chance  accumulate  wealth  rapidly, 
but  there  is  just  as  great  danger  that  he  will  lose  what 
he  has  accumulated  by  some  plunge  or  an  error  in  judg- 
ment.   The  conservative  man  who  does  not  overextend, 


80  MERCANTILE   CREDITS   AND   COLLECTIONS 

nor  plunge  long  into  undeveloped  mining  ventures,  nor 
play  the  market — ^whether  in  securities  or  merchandise 
— is  by  far  a  better  credit  risk  than  an  applicant  with 
gambling  instincts. 

It  is  well  to  determine  what  the  market  for  the  prod- 
uct of  your  prospective  customer  is  also.  If  the  mar- 
ket is  general  and  the  competition  is  keen,  credit  must 
naturally  be  extended  more  cautiously  than  if  the  pros- 
pect has  a  monopoly  or  very  little  competition.  This 
is  especially  so  in  the  manufacturing  business.  A  new 
concern  with  keen  competition  starting  to  manufacture 
an  article,  with  unknown  costs,  and  possibly  working 
on  misleading  figures  as  to  cost,  unless  there  is  ample 
capital  behind  the  business,  should  be  dealt  with  cau- 
tiously. On  the  other  hand,  a  farmer  may  default  in 
his  obligation  one  year,  and  may  even  have  a  total 
crop  failure,  but  if  he  owns  his  land  his  creditors  can 
carry  him  over  the  next  year,  and  even  the  next  year, 
as  he  is  sure  to  work  outi,  assuming  that  he  is  honest 
and  that  his  land  is  fertile  and  that  he  has  not  met  with 
some  catastrophe. 

Furthermore,  the  general  prosperity  of  the  community 
is  a  factor  in  analyzing  a  financial  statement.  A  con- 
cern doing  business  in  a  poorly  populated  territory, 
or  in  an  agricultural  section  where  crop  failures  are 
frequent,  is  very  likely  to  have  difficulties;  whereas  a 
concern  located  in  a  community  that  has  had  a  long 
period  of  prosperity  and  is  not  subject  to  droughts, 


READING   A   FINANCIAL   STATEMENT  81 

transportation  difficulties  or  labor  troubles  is,  when 
other  factors  are  good,  a  very  satisfactory  credit  risk. 

Lastly,  the  credit  man  should  require  information 
as  to  the  insurance  carried.  If  there  is  no  fire  insurance 
carried  by  the  applicant  for  credit,  a  fire  may  wipe  him 
off  the  map,  and  if  the  business  depends  upon  the  per- 
sonal activity  of  individuals  their  lives  should  be  in- 
sured in  favor  of  the  business  for  at  least  enough  to 
enable  that  concern  to  pay  its  creditors  should  the  main- 
stay of  the  business  come  to  the  end  of  life's  journey. 
Also,  workmen's  compensation  insurance  should  be 
carried  in  the  proper  amount,  and  contractors  and  others 
who  are  engaged  in  an  extra  hazardous  business  should 
carry  public  liability  insurance.  In  the  absence  of  these 
forms  of  insurance  some  disaster  might  occur  which 
might  seriously  embarrass  and  might  bankrupt  many 
institutions  that  were  fairly  well  established. 

If  possible,  it  is  well  to  ascertain  also  how  frequently 
the  stock  is  turned  over,  which  can  quickly  be  measured 
by  ascertaining  the  annual  sales  and  the  inventory. 
If  stock  is  turned  over  slowly,  obsolete  stock  accumu- 
lates and  the  inventory  value  depreciates  correspond- 
ingly. 

If  the  credit  man  will  get  information  of  the  above 
character  from  reliable  sources  and  weigh  it  carefully, 
he  will  not  find  much  difficulty  in  reading  the  financial 
condition  of  his  customer  and  determining  whether 
credit  can  be  safely  extended  or  not. 


CHAPTER  IX 

CONDITIONAL   SALES   CONTRACTS 

The  common  expression  ''conditional  sale"  is  now 
generally  accepted  as  meaning  a  sale  made  on  condi- 
tion that  title  does  not  pass  until  the  buyer  has  fully 
paid  the  purchase  price.  There  may  be  other  conditions 
in  such  a  conditional  sales  contract,  but  the  main  con- 
dition is  that  the  seller  reserves  title.  If  one  parts  with 
the  ownership  of  anything,  legally  it  is  a  sale,  but  if  he 
parts  with  merely  the  possession  and  still  retains  the 
ownership,  by  agreement,  it  is  a  conditional  sale. 
Legally  the  possession  is  transferred  while  the  owner- 
ship is  withheld  until  all  deferred  payments  are  com- 
pleted, but  of  course,  economically  it  is  nevertheless  a 
grant  to  the  purchaser  to  utilize  the  commodity  sold 
subject  to  the  prior  economic  right  of  the  seller  to  have 
returned  to  him  a  certain  sum  of  money.  By  the  con- 
dition of  the  contract,  however,  if  that  certain  sum  of 
money  is  not  returned  the  seller  has  the  right  to  retake 
the  property,  even  though  it  be  in  the  hands  of  another 
at  the  time  of  default. 

A  vast  amount  of  sales  are  made  in  this  country 
every  day  that  could  not  otherwise  be  made  if  it  were 
not  for  the  protection  afforded  to  the  seller  by  the  use 

82 


CONDITIONAL   SALES   CONTRACTS  83 

of  conditional  sales.  Many  wage  earners  could  not  en- 
joy pianos,  victrolas,  sewing  machines  and  other  useful 
and  necessary  articles  for  home  use  were  it  not  for  this 
instrument,  and  even  farmers  and  small  industrials 
might  not  be  able  to  expand  as  rapidly  if  they  could 
not  buy  their  implements  or  equipments  on  the  install- 
ment plan,  furnishing  only  as  security  a  conditional 
sales  contract,  paying  but  a  small  proportion  of  the 
purchase  price  at  the  time  of  acquiring  the  property. 

Conditional  contracts  of  sale  are  valid  as  between  the 
original  parties  thereto,  if  properly  executed,  without  re- 
cording or  filing,  in  every  state,  but  to  protect  the  seller's 
title  as  against  third  parties  who  otherwise  might  ac- 
quire some  right  or  interest  in  the  property  without 
knowledge  of  the  existing  contract,  it  is  necessary  in 
some  states  to  record  or  file  such  contract  to  give  legal 
notice  to  all  third  parties  of  the  real  ownership  of  the 
property  involved. 

The  requirements  as  to  recording  or  filing  vary  in 
different  states,  but  if  properly  executed  and  recorded 
or  filed,  as  the  law  provides,  they  are  an  absolute  pro- 
tection to  the  seller  as  against  nearly  all  third  parties 
imtil  the  goods  are  paid  for.    The  only  exceptions  are: 

1.  If  the  buyer  is  engaged  in  the  business  of  reselling 
such  articles,  or  using  them  in  the  course  of  manu- 
facture, or  in  some  other  way  by  which  they  must 
necessarily  be  consumed  or  destroyed  or  lose  their 
identity. 


84  MERCANTILE   CREDITS   AND    COLLECTIONS 

2.  In  some  instances  when  the  property  becomes 
firmly  attached  or  affixed  to  real  estate  and  cannot  be 
removed  without  serious  damage  to  the  real  property. 

3.  In  Illinois,  where  contracts  of  sale  are  not  recog- 
nized even  if  recorded  or  filed,  providing  the  rights  of 
third  parties  are  involved. 

4.  In  Louisiana,  where  such  contracts  are  not  valid 
as  against  third  parties  and  where  a  lease  with  an  option 
to  purchase,  or  a  chattel  mortgage,  should  be  used. 

5.  In  Pennsylvania,  where  a  bailment  contract  or 
lease,  with  an  option  to  purchase,  is  the  proper  form, 
unless  the  personal  property  becomes  affixed  to  real 
estate. 

6.  In  some  few  states,  where  the  courts  have  held 
that  the  destruction  of  the  property  before  it  is  fully 
paid  for  relieves  the  purchaser  of  further  liability. 

7.  In  a  few  others  states,  where  the  courts  have  held 
that  the  taking  of  independent  security  or  the  dis- 
counting of  notes  representing  deferred  payments  oper- 
ates to  pass  title. 

8.  Or  in  rare  instances,  where  the  seller  was  negligent 
in  enforcing  the  payment  or  recovering  the  property 
and  has  become  guilty  of  laches,  resulting  in  the  loss 
of  his  title  rights. 

The  character  of  the  article  sold  largely  determines 
the  advisability  of  using  a  conditional  sales  contract. 
For  instance,  furniture,  sewing  machines,  pianos,  musi- 
cal instruments,  automobiles,  bicycles,  machinery,  and 


CONDITIONAL   SALES    CONTRACTS  85 

similar  articles  sold  on  the  installment  plan  can  be  sold 
on  a  conditional  sales  contract.  On  the  other  hand, 
foodstuffs,  articles  for  domestic  consumption  or  articles 
consumed  in  manufacture  cannot  be  satisfactorily  sold 
on  a  title  retaining  contract. 

There  is  a  distinction  between  recording  and  filing 
these  contracts.  The  object  in  each  case  is  to  give 
notice  to  third  parties,  but  when  a  contract  is  recorded 
it  must  be  copied  in  a  book  kept  by  the  recording  officer 
word  for  word  and  must  be  indexed  properly,  for  which 
the  recorder  makes  a  service  charge  depending  upon 
the  amount  of  labor  required.  The  filing  of  the  same 
contract  merely  requires  that  a  copy  of  the  same  be 
placed  in  the  keeping  of  the  officer  designated  by  law 
and  indexed  for  ready  reference,  in  which  case  the  fees 
are  nominal. 

In  many  states  it  is  not  necessary  to  either  record 
or  file  the  contract  to  make  it  valid  as  to  all  parties 
if  it  is  in  writing  and  properly  signed.  Other  states 
have  laws  that  require  the  recording  or  filing  of  the 
contract  to  make  it  valid,  but  it  must  also  be  in  writing 
and  properly  signed,  and  in  some  states  must  be  ac- 
knowledged by  the  purchaser  or  seller,  and  in  some 
states  must  be  witnessed.  Other  states  require  renewal 
or  refiling  after  a  certain  period  in  order  to  preserve 
title. 

There  are  very  few  states  that  impose  a  criminal 
liability  upon  the  buyer  for  disposing  of  the  property 


86  MERCANTILE    CREDITS   AND    COLLECTIONS 

before  it  is  paid  for,  but  it  may  be  noted  that  the  status 
of  property  held  under  a  conditional  sales  contract  is 
rather  peculiar.  Under  the  terms  of  the  contract  the 
title  remains  in  the  seller  until  after  all  of  the  purchase 
price  has  been  paid.  However,  from  an  equitable  view- 
point the  buyer  acquires  an  interest  in  the  property 
with  his  first  payment  and  his  interest  increases  with 
every  installment  that  he  has  paid,  and  it  is  apparently 
for  this  reason  that  the  legislatures  of  the  various  states 
and  the  courts  take  the  view  that  there  is  no  crime  com- 
mitted by  the  buyer  in  disposing  of  unpaid  for  prop- 
erty purchased  on  a  conditional  sales  contract. 

However,  there  are  a  few  states  prescribmg  a  criminal 
penalty  for  disposing  of  property  of  this  character  be- 
fore it  is  paid  for.  Many  states,  however,  do  provide 
a  penalty  if  property  held  by  the  buyer  is  disposed  of 
before  a  chattel  mortgage  given  by  him  as  part  of  the 
purchase  price  is  fully  satisfied. 

Briefly  stated,  the  requirements  of  the  different 
states  with  respect  to  conditional  sales  contracts  are 
outlined  in  the  Appendix,  though  it  is  well  to  bear  in 
mind  that  the  requirements  are  often  changed  and  a 
credit  man  should  keep  up  to  date,  regardless  of  whether 
changes  occur  by  legislative  enactments  or  through 
court  decisions. 

In  case  of  default  in  payment  on  the  part  of  the 
buyer  of  any  property  purchased  under  a  conditional 
sales  contract  the  seller  usually  has  two  remedies,  and 


CONDITIONAL   SALES    CONTRACTS  87 

in  many  states  he  must  elect  as  to  which  of  the  two  he 
will  pursue.  In  many  states  if  the  seller  elects  to  col- 
lect his  claim  by  bringing  action,  the  bringing  of  an 
action  and  the  securing  of  a  judgment  automatically 
passes  title.  In  most  cases  it  is  better  for  the  seller  to 
recover  his  property  and  resell,  and  in  many  states 
this  can  be  done  without  legal  process  and  with  scant 
formality  of  any  kind.  The  agent  of  the  seller  merely 
takes  possession  and  that  ends  the  transaction.  But, 
of  course,  if  the  buyer  opposes  the  taking  of  the  prop- 
erty legal  action  is  necessary,  usually  by  way  of  re- 
plevin or  foreclosure. 

From  a  wide  experience  in  dealing  with  conditional 
sales  contracts,  the  writer  has  formed  an  impression 
that  it  is  the  tendency  of  the  courts  to  protect  the  buyer 
as  much  as  they  can  in  case  of  default,  and  this  is 
natural,  as  otherwise  unscrupulous  sellers  would  im- 
mediately upon  default  take  possession  of  property  that 
had  been  almost  entirely  paid  for.  On  the  other  hand, 
there  are  unscrupulous  buyers  that  would  take  ad- 
vantage of  sellers,  and  the  form  of  a  contract  that  does 
not  clearly  set  forth  all  conditions  and  rights  of  the 
parties  in  case  of  default  lessens  the  seller's  security. 
Sellers  of  machinery  probably  meet  with  more  tech- 
nical difficulties  than  sellers  of  other  classes  of  property. 
Several  forms  of  conditional  sales  contracts  are  shown 
in  the  Appendix,  covering  machinery  and  other  classes 
of  personal  property. 


88  MERCANTILE   CREDITS   AND   COLLECTIONS 

Credit  men  should  train  their  salesmen  to  see  that  all 
conditional  sales  contracts  are  in  proper  form,  that  there 
is  no  ambiguity  in  the  terms  of  payment  and  that  the 
contract  is  properly  executed  by  the  buyer.  Frequently 
the  buyer  is  a  corporation,  and  in  case  of  controversy 
the  seller  might  be  called  upon  by  the  attorney  for  the 
buyer  to  prove  that  the  individual  executing  on  behalf 
of  the  buyer  had  authority  to  so  execute.  For  this 
reason  salesmen  should  be  taught  to  insist  that  the 
individual  signing  for  a  corporate  buyer  show  his  au- 
thority for  signing.  This  will  indicate  to  the  credit 
man  whether  that  individual  does  have  authority  to 
make  the  purchase. 

The  sale  of  goods  under  conditional  sales  contracts 
covers  such  a  broad  field,  and  so  many  intimate  ques- 
tions arise,  that  no  attempt  has  been  made  to  give  a 
complete  analysis  of  the  situation  in  all  states;  but 
credit  men  can  always  ascertain  the  laws  of  the  states 
in  which  they  are  doing  business  covering  the  various 
phases  of  conditional  sales,  and  if  the  credit  man's 
field  covers  the  entire  United  States  there  are  several 
digests  of  the  subject  that  will  be  of  assistance  in  the 
solving  of  problems  that  arise  daily. 


CHAPTER  X 

TRADE  ACCEPTANCES 

There  has  been  much  interest  displayed  recently  in 
the  use  of  Trade  Acceptances,  and  many  educational 
campaigns  have  been  started  through  the  efforts  of 
the  Federal  Reserve  Banks,  the  American  Trade  Ac- 
ceptance Council,  and  individual  institutions  who  reahze 
their  value. 

On  the  other  hand,  there  are  prejudices  to  overcome — 
prejudices  existing  not  only  m  the  mind  of  the  dealer, 
but  also  in  the  minds  of  some  bankers.  This  is  natural, 
however,  as  every  deviation  from  definite  channels  in 
the  progress  of  the  world  has  always  met  with  opposi- 
tion. For  several  years  after  automobiles  came  into 
use  certain  classes  of  people  sneered  at  the  owner  of 
one,  and  a  man  who  drove  a  car  was  regarded  as  a 
''snob  "  and  not  even  entitled  to  the  use  of  the  highways. 
The  automobile  has,  however,  proven  its  worth,  and 
so,  regardless  of  prejudices  and  scepticism,  the  Trade 
Acceptance  will  prove  its  worth  in  American  business. 

The  Federal  Reserve  Board  in  its  circular  of  July, 
1915,  defines  a  Trade  Acceptance  as  ''A  bill  of  exchange 
drawn  to  order  having  a  definite  maturity  and  payable 
in  dollars  in  the  United  States,  the  obligation  to  pay 

89 


90  MERCANTILE    CREDITS   AND   COLLECTIONS 

which  has  been  accepted  by  an  acknowledgment,  writ- 
ten or  stamped,  and  signed,  across  the  face  of  the  in- 
strument, by  the  company,  firm,  corporation  or  per- 
son upon  whom  it  is  drawn;  such  agreement  to  be 
to  the  effect  that  the  acceptor  will  pay  at  maturity, 
according  to  its  tenor,  such  a  draft  or  bill  without 
qualifying  conditions." 

The  objections  to  the  Trade  Acceptance  that  it  is  not 
practical,  that  its  use  encourages  inflation,  or  that  it 
enables  a  certain  class  to  obtain  credit  by  juggling,  or 
that  it  will  drive  out  the  practice  of  cash  discounts, 
or  that  the  details  of  making  settlement  through  the 
use  of  Trade  Acceptances  are  too  burdensome,  do  not 
seem  to  stand  the  test  of  careful  consideration. 

Likewise  the  exponents  of  the  use  of  Trade  Accept- 
ances may  have  hurt  their  cause  by  overs.tating  the 
advantages.  It  is  a  mistake  to  say  that  the  Trade  Ac- 
ceptance is  the  only  proper  instrument  of  credit,  or  that 
it  will  drive  out  the  use  of  promissory  notes  and  abolish 
the  cash  discount  system,  and  that  it  is  the  only  form 
of  settlement  which  shows  patriotism. 

Why  is  not  a  promissory  note  a  proper  instrument  of 
credit  under  some  circmnstances  just  as  much  as  a 
Trade  Acceptance  is  a  proper  instrument  of  credit? 
Why  should  Acceptances  drive  promissory  notes  out 
of  existence?  Single-name  and  two-name  notes  will 
always  have  a  function  in  our  credit  relations.  Why 
should  a  man  who  sells  his  goods  for  cash  be  expected 


TRADE   ACCEPTANCES  91 

to  use  Trade  Acceptance  involving  long  time  credits, 
unless  his  cash  discount  is  so  heavy  that  he  can  better 
afford  to  do  it?  And  why  is  a  man  who  promptly  pays 
an  obligation  less  the  cash  discount  not  as  patriotic 
as  the  man  who  passes  up  the  cash  discount  and  settles 
with  Trade  Acceptances? 

Taking  a  broad  view,  therefore,  it  seems  ridiculous  to 
claim  that  the  Trade  Acceptance,  as  stated  by  many, 
is  or  will  be  the  only  satisfactoiy  medium  of  settlement, 
and  it  is  equally  as  ridiculous  to  deny  that  hundreds  of 
milhons  of  dollars'  worth  of  goods  sold  on  open  ac- 
counts which  if  converted  into  Trade  Acceptances 
would  make  for  better  business  and  benefit  both  buyer 
and  seller. 

Just  at  this  time  the  American  Trade  Acceptance 
Council  is  authority  for  the  statement  that  there  are 
over  four  thousand  firms  in  the  United  States  who  have 
adopted  the  use  of  Trade  Acceptances,  and  these  firms 
include  almost  every  line  of  business.  Of  course,  that 
there  is  a  considerable  advantage  to  the  seller  no  one 
will  deny.  He  can  immediately  convert  into  active 
capital  funds  that  would  otherwise  be  tied  up  in  open 
book  accounts.  His  banker  should  prefer  to  take  his 
acceptance  rather  than  his  note,  for  it  is  not  always  easy 
to  trace  where  the  money  went  on  a  loan  represented 
by  a  note,  but  a  Trade  Acceptance  is  positively  known 
to  represent  a  current  transaction  in  the  absence  of 
fraud.    Therefore,  the  seller  has  a  liquid  asset  on  which 


92  MERCANTILE    CREDITS   AND    COLLECTIONS 

he  can  readily  realize  at  the  bank  if  he  can  convert 
his  open  book  accounts  into  Trade  Acceptances. 

Some  bankers  have  claimed  that  they  prefer  to  buy 
promissory  notes  rather  than  Trade  Acceptances  be- 
cause they  then  feel  obliged  to  carefully  analyze  the 
statements  of  the  maker  of  the  note;  that  if  the  same 
firm  issued  a  Trade  Acceptance  they  would  be  more 
likely  to  rely  on  the  double-named  paper  without  as 
carefully  analyzing  the  condition  of  the  buyer  as  they 
would  if  they  were  advancing  funds  on  his  note.  Some 
bankers  also  claim  that  unscrupulous  borrowers  might 
manufacture  accommodation  Acceptances.  Other  bank- 
ers have  urged  that  they  would  not  care  to  buy  single- 
name  paper  of  a  borrower  if  he  were  in  the  habit 
of  selhng  his  Acceptances,  because  the  holder  of  the 
Acceptances  would  have  a  lien  upon  the  accounts  re- 
ceivable represented  by  such  Acceptances.  And  it  must 
be  evident  that  both  of  these  opposite  views  cannot  be 
correct,  one  banker  insisting  that  he  will  not  buy  Trade 
Acceptances  because  he  does  not  think  they  are  safe 
enough,  and  the  other  insisting  that  he  will  not  buy 
single-name  notes  of  a  man  who  obtain  and  sells  Trade 
Acceptances  because  such  Trade  Acceptances  are  so 
safe  that  they  give  the  holder  thereof  a  first  lien  on  the 
borrower's  book  accounts. 

Neither  of  these  arguments  seems  to  be  complete. 
One  buying  Acceptances  should  familiarize  himself  as 
thoroughly  with  the  financial  condition  of  the  endorser 


TRADE   ACCEPTANCES  93 

of  these  Acceptances  as  he  would  if  he  were  buying  a 
single-name  note  of  the  same  party.  If  the  discounter 
of  these  Acceptances  was  extending  credit  laxly  to  his 
own  customers,  the  endorser  of  the  Acceptances  might 
not  lend  much  strength  to  the  paper,  and  the  purchaser 
should  rely  more  largely  upon  the  financial  standing 
of  the  endorser  of  the  Acceptances  by  thoroughly  analyz- 
ing his  financial  statement. 

Likewise  taking  and  giving  Trade  Acceptances  assists 
the  banker  or  credit  man  to  analyze  a  financial  state- 
ment obtained  by  him,  as  such  statements  are  cleancut. 
On  the  asset  side  is  shown  the  exact  amount  available 
in  Uquid  items,  against  which  are  outstanding  liabilities, 
and  if  some  of  the  Trade  Acceptances  are  sold  (shown  as 
a  contingent  liability)  the  banker  would  always  as- 
certain what  the  funds  sought  to  be  borrowed  on  notes 
were  required  for  and  would  find  that  such  funds  were 
for  material  to  be  used  in  the  process  of  manufacture 
or  some  similar  purpose,  unless  the  borrower  was  giving 
his  acceptance  for  the  purchase  of  that  material,  etc., 
in  which  case  the  Trade  Acceptance  would  show  as  a 
Hability.  Therefore,  the  borrower  who  gives  Accep- 
tance for  such  purchases  cannot  deceive  his  banker  as  to 
the  real  purpose  for  which  new  funds  are  sought  by 
bank  loans. 

Some  institutions  are  fighting  the  Trade  Acceptance 
because  they  wish  to  maintain  their  business  on  a  cash 
basis — that  is,  they  are  wilhng  to  pay  a  relatively  high 


94  MERCANTILE   CREDITS   AND    COLLECTIONS 

premium  to  avoid  the  cares  and  risks  of  sales  on  credit. 
Every  institution  must  determine  that  point  for  itself, 
and,  most  certainly,  it  is  not  contemplated  that  the 
Trade  Acceptance  should  be  used  in  a  business  where 
cash  payments  can  be  obtained  from  customers  of  that 
institution. 

The  real  function  of  the  Trade  Acceptance  is  to 
benefit  the  institution  who  must  by  custom  grant  credit 
terms  through  open  book  accounts.  There  are  really 
only  two  classes  of  business  institutions  that  can  rea- 
sonably object  to  Trade  Acceptances,  the  first  class 
being  unreliable  purchasers  who  do  not  care  to  be  bound 
on  a  definite  obligation  to  pay  on  a  certain  definite 
date,  and  this  is  one  of  the  reasons  why  the  seller  ought 
to  urge  the  use  of  the  Acceptance  most  strongly;  the 
other  class  of  objectors  being  large  firms,  of  great  finan- 
cial strength,  who  desire  to  preserve  their  position  of 
advantage  against  their  competitors.  The  large  bor- 
rower by  using  its  own  note  can  obtain  funds  on  more 
favorable  terms  than  its  smaller  competitors,  which 
means  that  it  can  finance  its  purchases  and  its  sales  on 
a  more  favorable  basis.  It  has  the  advantage  of  a 
larger  scope  of  business  and  a  lower  rate  of  interest. 
It  is  true  the  large  institution  might  still  further  in- 
crease its  business  by  using  Trade  Acceptances,  but 
the  small  firms  are  benefited  more  in  proportion  than 
the  large  ones,  and  this  would  shorten  the  handicap 
that  the  large  firm  now  enjoys. 


TRADE   ACCEPTANCES  95 

One  of  the  advantages  in  the  use  of  Acceptances  that 
seems  to  have  overlooked  is  that  it  quickens  the  'Hum- 
over."  Every  individual  business  transaction  passes 
through  many  motions.  In  these  times  particularly 
it  is  to  the  general  interest  that  money  put  out  for  labor 
and  material  return  as  fast  as  it  can  to  the  producer 
when  his  goods  are  sold.  Until  this  money  does  return 
to  the  producer  he  must  rely  on  bank  credit,  and  fre- 
quently he  must  adjust  the  scope  of  his  operations  to 
the  speed  with  which  this  ''turnover"  can  be  com- 
pleted. 

Here  the  Trade  Acceptance  plays  an  important  part. 
The  manufacturer  can  discount  the  Trade  Acceptance 
and  obtain  the  money  much  sooner  than  he  could  by 
carrying  the  obligation  as  an  open  book  acount,  but 
even  though  he  does  not  discount  these  Acceptances 
and  holds  them  until  maturity  he  can  figure  in  a  very- 
definite  way  and  deal  with  concrete  elements,  rather 
than  estimates  of  what  proportion  of  his  accounts  will 
be  paid  on  certain  dates,  for  it  is  certain  that  a  written 
obligation  in  definite  concrete  form,  as  the  Trade  Ac- 
ceptance is,  will  certainly  be  paid  at  maturity  more 
often  than  the  open  book  account  with  only  an  implied 
understanding  as  to  maturity. 

Some  of  the  advantages  to  the  buyer  are  that  it 
improves  his  standing,  because  it  shows  prompt  paying 
methods.  Giving  Acceptances  prevents  the  buyer  from 
overexpanding  and  overbuying,  because  he  will  realize 


96  MERCANTILE   CREDITS   AND    COLLECTIONS 

when  he  has  a  definite  record  of  his  obhgations  and  as 
to  when  they  mature  that  he  cannot  overstock  or  over- 
buy without  knowing  where  the  money  is  coming  from 
to  pay  for  the  Acceptances  he  gives  for  such  purchases; 
and  training  him  to  be  a  more  careful  and  intelhgent 
buyer  is  bound  to  be  reflected  in  his  profits  at  the  end 
of  the  year.  Furthermore,  it  will  check  any  tendency 
to  use  commercial  credit  as  fixed  capital,  and  this  may 
save  serious  embarrassment  at  some  time  when  credit 
relations  with  his  banker  are  strained  or  not  available 
just  at  the  time  when  his  creditors  are  insisting  upon 
payment  of  obligations  owing  them. 

The  buyer  is  also  trained  to  be  a  better  collector;  be- 
cause he  must  meet  certain  definite  obhgations  on  cer- 
tain definite  dates  he  will  require  his  customers  to  pay 
him  their  accounts  so  that  he  may  meet  his  own  ma- 
turing obligations,  thus  reducing  his  losses,  as  the  more 
prompt  collections  are  the  less  the  hazard  and  the  less 
the  ultimate  loss  in  bad  accounts. 

Either  the  National  Association  of  Credit  Men  or 
the  American  Trade  Acceptance  Council  will  furnish 
all  those  inquiring  with  approved  and  satisfactory 
forms  of  Trade  Acceptance  Uterature  that  is  helpful  in 
conducting  an  educational  campaign,  and  booklets, 
or  the  names  of  banks  issuing  booklets,  on  the  subject, 
that  are  very  instructive  and  interesting. 


CHAPTER   XI 

GENERAL    KNOWLEDGE    OF    LAW    AND    INFORMATION    ON 
CREDIT   CONDITIONS 

It  is  very  helpful  to  a  credit  man  to  have  a  general 
knowledge  of  commercial  law,  particularly  that  re- 
specting the  collection  of  obligations  and  respecting 
contingent  liabilities.  This  is  especially  so  if  the  credit 
man  is  in  charge  of  the  collection  department.  The 
main  items  with  which  a  credit  man  should  acquaint 
himself  are  laws  relating  to: 

Exemptions, 

Mortgages,  both  real  and  chattel, 

Deeds, 

Taxes, 

Claims  against  estates. 

Conditional  sales, 

Promissory  notes, 

Collateral  notes. 

Endorsements, 

Acknowledgments, 

Affidavits, 

Assignments, 

Attachments, 

Community  interests, 

97 


98  MERCANTILE   CREDITS   AND   COLLECTIONS 

Dower  rights, 

Limitations, 

Mechanic's  liens. 

Interest, 

Judgments, 

Deeds  of  trust, 

Redemption, 

Replevin, 

Bulk  sales  law, 

Warehouse  receipts, 

Bills  of  lading. 

Wills, 

Supplementary  proceedings. 

Bankruptcy, 
It  is  not  very  satisfactory  to  be  compelled  to  con- 
sult a  lawyer  concerning  the  ordinary  affairs  of  com- 
mercial life,  and  while  it  is  not  desirable  or  necessary 
for  a  credit  man  to  act  entirely  as  an  attorney  for  his 
employer,  it  is  desirable  that  he  be  sufficiently  ac- 
quainted with  these  matters  to  enable  him  to  pass 
judgment  on  the  ordinary  case. 

As  a  rule  an  attorney  is  not  a  good  business  man, 
but  if  a  credit  man  knows  the  practical  operation  of  the 
laws  of  the  states  in  his  territory,  a  claim  will  be  in 
proper  shape  when  it  goes  to  an  attorney,  if  it  ever 
reaches  one.  For  instance,  if  the  average  attorney  is 
consulted  as  to  the  liability  of  an  endorser,  he  will  tell 
you  whether  or  not  the  note  must  be  protested,  but  a 


LAWS   RELATING   TO   CREDITS  99 

shrewd  credit  man  will  not  consult  an  attorney  on  that 
point,  but  will  have  notes  prepared  with  a  printed 
waiver  on  the  back  thereof.  Occasionally  banks  will 
fail  to  protest  a  note,  even  if  instructed  to  do  so,  but 
if  your  promissory  note  forms  have  printed  across  the 
back  thereof  a  statement  that  presentment,  protest, 
notice  of  protest  and  demand  are  waived,  and  that  an 
extension  may  be  granted  without  notice  to  the  under- 
signed, it  will  not  be  necessary  to  instruct  banks  to 
protest,  the  endorser  in  that  case  being  liable  without 
protest. 

Likewise,  if  a  credit  man  is  familiar  with  the  laws 
relating  to  chattel  mortgages,  he  will  know  when  a 
chattel  mortgage  is  received  whether  it  is  in  proper 
form.  He  will  know  whether  or  not  any  rights  are  lost 
failing  to  foreclose  or  take  possession  of  the  property 
promptly  at  maturity  date.  He  will  protect  himself 
by  taking  the  form  of  collateral  note  that  permits  the 
holder  thereof  to  sell  the  security  without  any  advertise- 
ment, demand  or  notice,  instead  of  the  usual  form  with- 
out such  a  waiver,  requiring  the  holder  thereof  to  pro- 
ceed to  sell  the  property,  as  in  the  case  of  a  pledge. 

By  familiarizing  himself  with  these  general  subjects, 
he  will  know  what  assets  to  strike  out  of  a  statement 
that  are  exempt.  In  many  statements  rendered  by 
applicants  for  credit  there  is  included  the  value  of 
their  home,  which  in  most  states  is  absolutely  exempt. 
It  is  usually  not  very  difficult  to  obtain  a  copy  of  the 


100  MERCANTILE   CREDITS   AND   COLLECTIONS 

statutes,  or  some  simple  form  of  publication  covering 
all  these  points. 

By  having  this  information  before  you,  you  are 
prepared  to  act  promptly.  Should  one  of  your  debtors 
become  deceased,  you  can  readily  ascertain  what  the 
requirements  are  with  reference  to  filing  claims  against 
the  estate,  and,  in  fact,  by  obtaining  the  blank  form 
of  claims  against  estates,  you  can  fill  it  out  and  file  it 
with  the  administrator,  or  do  whatever  is  necessary 
to  put  it  in  line  for  pajnnent  without  the  necessity  of 
consulting  an  attorney  or  incurring  the  expense  of 
attorneys'  fees  and  maintain  your  own  control  over  the 
obligation,  as  well. 

A  knowledge  of  the  operation  of  the  bankruptcy  laws 
is  also  desirable,  and  this  can  be  obtained  from  a  number 
of  books  on  bankruptcy  published  for  just  such  purpose 
and  thoroughly  indexed,  from  which  a  credit  man  can 
get  all  the  practical  information  necessary  concerning 
bankrupt  estates  and  bankruptcy  claims.  A  separate 
chapter  will  be  devoted  to  the  subject  of  bankruptcy 
in  Part  II  of  this  book. 

A  credit  man  should  realize  the  extent  to  which  the 
goods  sold  by  the  house  are  guaranteed  or  warranted. 
Even  in  the  absence  of  any  guarantee  or  warranty  there 
is  always  an  implied  warranty  that  the  goods  sold  are 
sound  and  merchantable  and  free  from  defects.  It  is 
very  important  in  selling  machinery  to  limit  this  guar- 
antee or  warranty  to  the  replacement  of  defective  parts 


LAWS  RELATING   TO   CREDITS  101 

of  machinery,  as  otherwise  the  contingent  damages 
might  be  very  heavy,  and  if  the  credit  man  is  also  in 
charge  of  the  collection  department,  he  will  get  all  of 
the  grief  adjusting  accounts  that  are  tied  up  on  claims 
for  defects,  etc.,  but  he  can  reduce  the  amount  of  these 
troubles  by  having  a  knowledge  of  the  law  relating  to 
warranties  and  seeing  that  the  goods  are  sold  with  the 
proper  warranty  and  that  the  firm  is  protected  against 
unjust  claims. 

In  some  states  there  is  no  redemption  from  a  sale 
under  a  trust  deed,  and  if  a  credit  man  knows  these 
elementary  legal  facts,  he  will  insist  upon  a  trust  deed 
instead  of  a  mortgage  if  there  is  no  redemption  from 
the  trust  deed,  and  by  acquainting  himself  with  the  laws 
relating  to  the  subjects  herein  suggested,  he  can  de- 
termine for  himself  what  form  of  security  is  best  for 
the  house,  what  mode  of  procedure  is  best  in  case  he 
gets  in  trouble,  and  what  compromise  settlement  should 
be  undertaken  in  case  of  serious  difficulties. 

A  summary  of  some  of  these  questions  can  be  found 
in  either  Bradstreet's  or  Dun's  rating  books,  but  it  is 
better  to  get  some  publication  that  covers  the  whole 
field  in  the  territory  where  the  credit  man  has  juris- 
diction. 

It  is  advisable  for  a  credit  man  to  keep  thoroughly 
informed  on  all  conditions  affecting  credits  in  the  ter- 
ritory in  which  the  firm  is  doing  business,  and  it  is 
really  desirable  to  study  credit  conditions  of  the  coun- 


102  MERCANTILE    CREDITS   AND    COLLECTIONS 

try  as  a  whole,  as  frequently  certain  conditions  will 
spread  from  one  section  of  the  country  to  the  other. 
Outside  of  calamities,  the  three  things  that  affect 
credit  the  most  are  financial  conditions,  as  reflected 
by  the  banks,  crop  conditions  and  trade  or  industrial 
conditions. 

To  keep  informed  on  financial  conditions  it  is  de- 
sirable to  obtain  from  some  reliable  source  a  consoli- 
dated statement  of  the  condition  of  banks  periodically, 
showing  deposits,  loans  and  clearings.  If  you  do  not 
get  this  all  ready  through  some  medium,  your  local 
bank  can  tell  you  how  to  get  it  in  the  district  you  are 
interested  in.  It  is  also  well  to  keep  in  touch  with 
your  banker,  as  he  is  usually  well  informed  on  all  con- 
ditions affecting  credit.  Bank  clearings,  bank  deposits 
and  bank  loans  somewhat  measure  the  activity  of  busi- 
ness, and  a  comparative  statement  will  show  whether 
the  tendency  is  up  or  down. 

In  order  to  be  informed  on  crop  conditions  there  is 
nothing  more  dependable  than  the  government  crop 
report,  and  this  is  furnished  free  to  those  desiring  it  by 
the  Department  of  Agriculture  at  Washington  upon 
request,  and  if  you  do  not  receive  the  government 
crop  reports  now  it  is  recommended  that  you  write  to 
the  Department  of  Agriculture  and  get  on  the  mailing 
list. 

This  is  a  complete  crop  report  covering  the  United 
States,  but  the  condition  of  crops  by  states  or  districts 


LAWS   RELATING   TO   CREDITS  103 

is  also  shown,  as  well  as  comparative  data  that  is  quite 
valuable.  Other  information  concerning  agricultural 
conditions  in  your  immediate  district  should  also  be 
obtained,  and  this  is  comparatively  easy  to  get,  but 
full  consideration  should  be  given  to  it.  For  instance, 
if  the  season  has  been  exceedingly  dry  and  a  short  crop 
is  expected,  money  will  not  be  as  easy  as  if  a  good 
crop  was  produced,  market  conditions  being  equal. 

Trade  and  industrial  conditions  should  be  watched 
to  the  same  extent.  Dun's  Weekly  Review  gives  some 
very  valuable  information  along  these  lines,  and  a 
credit  man  connected  with  a  firm  dealing  largely  with 
manufacturers  must  necessarily  keep  well  informed 
on  conditions  of  this  sort. 

In  a  mining  district  it  is  usually  possible  to  get  reli- 
able data  concerning  the  prosperity  of  the  mining  com- 
munity in  which  you  are  interested,  and  where  oil 
is  produced  it  is  desirable  to  follow  closely  the  produc- 
tion and  consumption  figures.  General  local  conditions 
should  be  watched  carefully. 


PART  II 
MERCANTILE  COLLECTIONS' 


CHAPTER  I 

FUNCTIONS   OF   A   GOOD    COLLECTOR 

The  prime  requisite  of  the  manager  of  a  collection 
department  is  to  so  conduct  the  department  that  ob- 
Hgations  are  collected  at  maturity.  This  sounds  very- 
simple,  but  in  actual  practice  much  difficulty  is  found 
in  carrying  out  this  duty  properly.  Of  course,  whether 
or  not  collections  can  be  made  promptly  at  maturity 
depends  largely  upon  the  policy  followed  by  the  credit 
manager.  If  the  credit  department  is  run  separately, 
or  if  run  by  the  same  party  in  charge  of  collections, 
then  the  success  in  collecting  promptly  depends  upon 
the  pohcy  pursued  by  this  same  party  in  the  original 
extension  of  his  credits.  If  it  is  the  policy  to  be  liberal 
in  granting  credits  in  order  to  get  a  large  volume  of 
business,  and  take  some  chances,  collections  will  natu- 
rally be  more  difficult  than  if  conservative  judgment  is 
exercised  and  credit  extended  only  to  those  whose 
financial  condition  is  such  as  will  enable  them  to  pay 
promptly. 

A  good  collector  should  make  as  few  enemies  as  pos- 
sible, and  drastic  or  rough-shod  methods  are  only  to  be 
resorted  to  in  extreme  or  emergency  cases,  after  having 

ascertained  that  the  ordinary,  usual,  courteous  business 

107 


108  MERCANTILE   CREDITS   AND   COLLECTIONS 

methods  are  not  sufficient — in  fact,  a  collector  has  not 
really  done  good  work  if  he  has  collected  a  slow  account 
and  left  some  substantial  customer  in  such  a  frame  of 
mind  that  he  will  never  again  do  business  with  the 
firm.  There  are  many  concerns  throughout  the  coun- 
try who  are  amply  solvent,  but  merely  slow  pay.  Many 
of  them  lack  business  courtesy,  and  pay  very  little,  if 
any,  attention  to  requests  for  payment.  After  writing 
two  or  three  times  a  collector  gets  exasperated  and  pro- 
ceeds to  press  the  account  vigorously.  However,  care 
and  thought  should  be  used  in  determining  on  a  course 
to  be  followed,  as  frequently  diplomatic  methods  will 
bring  about  collection  faster  than  harsh  methods  would, 
and  enable  a  collector  to  still  retain  for  the  benefit  of 
his  firm  the  good  will  of  the  delinquent. 

A  good  collector  should  use  constructive  methods, 
and  if  a  debtor  is  involved  make  suggestions  that  will 
enable  him  to  get  on  his  feet  so  that  he  can  pay  you. 
It  is  far  better  to  give  him  the  benefit  of  your  business 
judgment  so  that  he  can  pay  you,  rather  than  be  com- 
pelled to  liquidate,  which  not  only  puts  him  out  of  busi- 
ness, but  which  probably  will  cause  your  firm  a  loss, 
as  very  few  concerns  liquidate  and  pay  one  hundred 
cents  on  the  dollar. 

The  application  of  constructive  methods  involves  a 
careful  analysis  of  the  reasons  why  your  customer  is 
not  paying  at  maturity.  The  first  requisite  is  to  get 
his  confidence.    After  you  have  a  debtor's  confidence 


FUNCTIONS   OF   A   GOOD    COLLECTOR  109 

and  can  get  a  complete  statement  of  his  business,  you 
can  determine  where  the  trouble  is,  and  unless  the  case 
is  a  hopeless  one  suggest  methods  for  overcoming  that 
trouble.  In  getting  this  statement  you  can  also  de- 
termine whether  it  is  advisable  to  insist  on  security. 

Extensions  should  be  granted  only  for  an  adequate 
consideration.  It  is  usually  not  the  best  practice  to 
grant  an  extension  when  a  debtor  merely  asks  for  it, 
without  showing  any  specific  reason  as  to  why  it  is 
necessary,  and  in  most  cases  it  is  better  to  obtain  se- 
curity; or  if  an  open  account  is  to  be  extended,  it  is 
recommended  that  a  promissory  note  be  taken,  payable 
at  the  time  the  extension  would  mature,  and,  if  neces- 
sary, the  note  should  be  endorsed.  In  some  cases  it  is 
desirable  to  take  a  collateral  note,  with  an  assignment 
of  certain  accounts  owing  the  debtor  as  collateral  secu- 
rity. But  whatever  form  the  extension  takes  it  should 
be  only  for  a  sufficient  consideration.  Following  that 
rule  is  one  of  the  best  plans  in  existence  to  cure  debtors 
from  continually  asking  extensions  just  because  they 
think  it  may  not  be  entirely  convenient  to  pay  the 
account  at  maturity.  The  collector  should  endeavor 
to  teach  all  the  debtors  of  his  institution  that  an  obliga- 
tion is  definite  and  concrete  and  that  payment  is  always 
expected  at  maturity. 

Another  function  of  the  collector  is  to  assist  in 
promptly  adjusting  complaints.  Many  of  the  complaints 
come   to   the   collection   department   for   adjustment, 


110  MERCANTILE   CREDITS   AND   COLLECTIONS 

unless  there  is  a  regularly  ordained  complaint  depart- 
ment to  dispose  of  such  matters.  However,  it  is  the 
tendency  of  debtors  to  hold  up  the  entire  obhgation  if 
they  have  even  a  minor  complaint.  Not  only  should 
you  assist  in  undertaking  to  satisfactorily  adjust  the 
complaint,  but  pending  adjustment  a  letter  should  be 
sent  to  the  debtor  stating  that  his  claim  is  receiving 
attention  and  that  in  the  meantime  it  is  requested  that 
he  send  in  a  remittance  for  a  portion  of  the  account. 
That  is  to  say,  if  a  man  owes  a  thousand  dollars  past 
due  and  holds  up  the  entire  balance  because  of  some 
complaint  that  does  not  aggregate  more  than  fifty  or 
sixty  dollars,  it  is  desirable  to  write  to  him  suggesting 
that  he  send  in  nine  hundred  dollars  on  account  and 
allow  the  other  one  hundred  dollars  to  stand  until  his 
complaint  is  adjusted.  This  very  materially  assists 
in  making  most  adjustments,  as  many  of  them  are 
largely  imaginary,  and  the  more  money  a  customer 
owes,  the  more  complaint  he  thinks  he  has;  and,  con- 
versely, the  less  he  owes,  the  less  he  thinks  his  com- 
plaint is. 

Regardless  of  the  business  transacted,  and  regardless 
of  the  form  of  the  obligation,  some  notification  should 
be  given  the  debtor  on  the  day  of  maturity  or  shortly 
before  the  obligation  matures.  In  the  case  of  open 
accounts  the  usual  custom  is  to  send  a  statement  of  the 
open  account  as  it  appears  on  the  ledger.  Some  con- 
cerns render  a  statement  showing  the  balance  due  on 


FUNCTIONS   OF  A   GOOD    COLLECTOR  111 

the  1st  of  the  preceding  month,  to  which  is  added  the 
date  and  the  amount  of  each  purchase  during  the  cur- 
rent month,  and  from  the  total  is  subtracted  credits 
for  goods  returned,  allowances  made  and  cash  paid. 
Other  concerns  prefer  to  list  every  unpaid  item  on  the 
statement  instead  of  showing  the  balance  due  on  the 
1st  of  the  month,  so  that  the  collection  department 
will  have  their  attention  drawn  to  old  items,  which 
may  be  overdue  and  which  might  not  be  so  noticeable 
if  the  statement  were  rendered  by  merely  showing  the 
balance  due  on  the  1st  of  the  month.  Unless  the  pur- 
chases and  credits  are  too  voluminous  on  each  account 
it  is  recommended  that  statements  be  rendered  showing 
all  unpaid  items,  not  only  to  call  the  attention  of  the 
collection  department  to  such  unpaid  items  past  due, 
but  so  that  the  attention  of  the  debtor  himself  may  be 
forcibly  drawn  to  the  fact  that  many  of  his  purchases 
are  long  past  due. 

Where  the  obHgation  is  in  the  shape  of  a  note  a 
notice  should  be  sent  to  the  debtor  before  maturity  so 
that  he  will  have  an  opportunity  to  pay  it  at  maturity. 
Of  course,  if  a  promissory  note  is  delivered  to  some  bank 
for  collection,  the  bank  will  send  a  printed  notice  of 
maturity  to  the  debtor,  filling  in  the  amount  of  the 
note  and  the  day  it  falls  due.  If  the  note  is  not  dis- 
counted or  sent  through  a  bank  for  collection,  and  the 
notice  of  maturity  is  given  to  the  debtor  by  the  creditor 
direct,  a  printed  form  should  be  used  and  mailed  to  the 


112  MERCANTILE   CREDITS  AND   COLLECTIONS 

debtor  so  that  it  will  reach  him  about  ten  days  before 
maturity,  or  long  enough  before  maturity  to  give  him 
an  opportunity  to  have  a  remittance  in  the  hands  of 
the  creditor,  or  his  agent,  at  maturity,  being  either 
more  or  less  than  ten  days  before  maturity.  This 
printed  notice  should  provide  a  space  to  show  the  date 
the  note  was  given,  the  amount  of  the  principal,  the 
accrued  interest  to  date  of  maturity,  and  directions  as 
to  where  funds  should  be  sent  to  liquidate  the  obligation 
and  where  the  promissory  note  is  held  for  collection. 

If  business  done  is  by  contract  and  under  the  terms 
of  the  contract  certain  payments  fall  due  at  certain 
specified  times,  or  when  certain  work  has  been  com- 
pleted to  a  certain  stage,  as  in  the  case  of  buildings, 
machinery  being  built  to  order,  etc.,  a  special  letter  is, 
of  course,  necessary  to  notify  the  debtor  the  amounts 
due  on  certain  dates  in  accordance  with  the  contract. 

If  according  to  the  terms  of  sale  payment  is  due  on 
delivery  or  upon  presentation  of  shipping  documents, 
for  which  a  draft  is  drawn  with  the  bill  of  lading  at- 
tached, the  holder  of  the  di'aft  for  collection  will  send 
a  proper  notice,  but  many  firms  follow  the  practice  of 
sending  a  notice  direct  to  the  buyer  that  a  draft  is 
forwarded  with  shipping  documents  attached.  There 
is  some  advantage  in  this  practice,  in  that  it  shows 
your  customer  that  you  are  giving  him  good  service, 
and,  also,  so  that  in  case  the  holder  of  the  draft  neglects 
to  send  the  notice,  or  in  case  the  notice  is  misdirected 


FUNCTIONS  OF  A  GOOD  COLLECTOR       113 

or  lost,  the  buyer  will  nevertheless  have  advice  from 
the  seller  that  the  obhgation  is  due  and  he  will  then 
know  when  to  expect  the  arrival  of  the  material. 

Trade  acceptances  are  usually  discounted  or  turned 
over  to  a  bank  for  collection,  and  in  that  case  the  bank 
can  be  depended  upon  to  send  notice  of  maturity,  as 
such  paper  is  always  payable  at  some  specified  bank. 


CHAPTER  II 

FOLLOW-UP   SYSTEM   AND    COLLECTION   LETTERS 

The  best  collectors  are  the  most  persistent;  the  most 
persistent  collectors  are  the  most  systematic. 

An  easygoing  collector  soon  loses  all  hold  and  con- 
trol of  his  debtors;  but  one  who  has  a  reputation  of 
being  strict,  yet  fair  and  considerate,  gets  results  with 
the  least  effort  and  makes  the  least  losses;  in  fact,  if 
credit  is  extended  with  a  reasonable  amount  of  judg- 
ment, barring  calamities,  most  accounts  are  collectible 
at  or  about  maturity.  The  losses  usually  creep  in 
through  laxness  and  by  not  persistently  pressing  debtors 
for  payment  at  maturity,  and  with  much  vigor  there- 
after. 

To  follow  collections  closely  it  is  necessary  to  have  a 

follow-up  system,  and  this  system  should  be  as  nearly 

automatic  as  possible.    One  effective  method  is  to  have 

an  extra  copy  of  the  customers'  monthly  statements 

furnished  to  the  collection  department,  and  these  can 

be  gone  over  by  stenographers  or  clerks  in  the  office, 

and  those  which  have  not  matured  eliminated.    Those 

which  have  matured  can  be  classified  and  certain  form 

letters  written  those  in  a  certain  class.     The  copy  of 

the  statement  should  be  kept,  and  on  it  should  be  noted 

114 


FOLLOW-UP   SYSTEM  115 

what  form  was  sent;  or  if  a  special  letter  is  sent,  a 
carbon  copy  of  the  letter  should  be  attached  to  the 
statement.  This  starts  the  file  as  soon  as  the  account 
is  due.  On  the  carbon  copy  of  the  letter  should  be 
marked  the  date  that  the  collector  desires  this  partic- 
ular matter  to  come  up  for  attention  again.  That 
carbon  should  then  be  filed  ahead  in  the  date  marked 
thereon.  In  this  way  each  day  there  is  placed  on  the 
collector's  desk  from  the  filing  department  all  matters 
coming  up  for  attention  that  day.  Clerks  may  run 
through  these  files  and  eliminate  items  that  have  been 
paid.  If  the  number  of  accounts  being  followed  is 
voluminous,  and  it  is  desired  to  keep  correspondence 
in  alphabetical  order,  or  if  a  number  system  of  filing  is 
used  and  it  is  desired  to  keep  that  follow-up  letter  in  its 
proper  place  in  the  file,  then  a  card  should  be  made  out 
with  the  name  of  the  debtor  and  the  date  upon  which 
the  matter  is  to  be  brought  up  written  thereon  by  the 
stenographer  or  filing  clerks,  and  such  cards  should  be 
put  ahead  in  the  file  on  the  date  noted,  so  that  a  stenog- 
rapher or  file  clerk  may  get  out  all  these  files  on  each 
day  as  they  come  up.  These  follow-up  matters  should 
be  carefully  checked  over  before  a  follow-up  letter  is 
sent  out  to  be  sure  that  no  debtor  is  being  pursued  for 
payment  after  he  has  already  paid. 

If  the  names  of  debtors  are  taken  off  on  a  list  when 
the  trial  balance  is  taken,  an  extra  copy  of  such  fist 
should  be  made,  to  be  used  as  a  collection  Hst  on  which 


116  MERCANTILE   CREDITS   AND    COLLECTIONS 

can  be  noted  the  payments  made  each  day  opposite 
the  customer's  name.  If  this  is  done  systematically 
every  night,  the  collection  department  will  have  before 
them  each  morning  a  complete  Ust  of  the  customers, 
with  their  accounts  as  of  the  1st  of  the  month  brought 
up  to  date  in  so  far  as  payments  are  concerned. 

If  the  organization  of  the  cashier's  department  is 
such  that  this  collection  list  can  be  gotten  out  and  the 
payments  noted  thereon  they  are  very  helpful  and  well 
worth  the  effort  required  to  keep  them  written  up  daily. 

Special  lists  of  accounts  60  or  90  days  or  more  past 
due  should  always  be  on  the  collector's  desk,  and  if  the 
work  is  segregated  among  several  collectors,  alphabeti- 
cally or  otherwise,  this  should  be  divided  so  that  ac- 
counts 60  or  90  days  or  more  overdue  are  always  before 
the  collector  in  charge  of  the  collection  thereof,  and  as 
payments  come  in  on  these  accounts  they  should  be 
stricken  off,  and  this  special  list  should  be  analyzed 
every  day  as  well  as  the  analysis  they  get  through  the 
follow-up  system.  Vigorous  campaigns  should  be  di- 
rected toward  the  collection  of  such  older  accounts. 

Following  the  maturities  of  notes  is  substantially 
the  same  as  following  open  accounts,  except  that  no 
statement  is  prepared,  but  a  memorandum  should  be 
given  the  collector  by  the  bookkeeping  department  or 
cashier,  showing  the  maturity  of  notes  about  ten  or 
fifteen  days  before  they  mature,  and  if  they  are  not 
paid  promptly  at  maturity  the  collector  should  im- 


FOLLOW-UP   SYSTEM  117 

mediately  take  such  items  up  for  collection,  and  as  with 
accounts,  notes  that  are  90  days  or  more  overdue 
should  be  carefully  hsted  and  given  very  special  at- 
tention. 

No  special  collection  letter  forms  are  outlined  herein, 
for  it  is  better  if  a  collector  can  devise  his  own  form  of 
letter  to  meet  the  circumstances  of  the  case,  using  his 
own  individual  style  of  diction,  the  individuality  of 
which  will  probably  get  better  results  than  some 
stereotyped  form  of  letter  that  may  be  generally  used 
by  several  collectors  and  the  general  tone  of  which  will 
appeal  to  the  debtor  as  being  a  stock  form. 

The  writing  of  effective  collection  letters  is  an  art, 
and  the  thought  should  always  be  borne  in  mind  that 
you  wish  to  attract  the  debtor's  attention  to  the  letter 
in  the  opening  sentence,  so  that  it  will  not  be  thrown 
aside  without  receiving  due  and  proper  attention;  in 
other  words,  you  have  a  message  to  deliver  and  it  is 
important  to  get  the  immediate  attention  of  the  debtor 
in  order  to  deliver  that  message.  The  "ding  dong" 
type  of  letter  is  practically  worthless.  Many  collectors 
make  the  mistake  of  writing  the  same  old  stuff  month 
in  and  month  out  to  delinquent  debtors  and  then 
wonder  why  they  cannot  succeed  in  collecting  certain 
old  accounts;  for  instance,  at  times  on  an  old  delinquent 
account  you  can  catch  the  debtor's  attention  by  using 
as  an  opening  sentence,  ''Have  you  an  order  for  us?" 
Frequently  this  surprises  the  delinquent  and  the  thought 


118  MERCANTILE    CREDITS   AND   COLLECTIONS 

occurs  to  him  that  the  firm  must  appreciate  his  business 
after  having  carried  him  so  long  to  sohcit  him  for  an 
order,  and  in  many  cases  he  will  actually  remit  the  old 
account  whether  he  places  an  order  or  not.  If  he  does 
remit  and  sends  an  order  also,  the  order  can  be  dealt 
with  according  to  existing  circumstances  and  the  condi- 
tion of  his  finances;  if  he  sends  an  order  and  does  not 
remit,  it  gives  the  collector  an  opportunity  of  writing 
him,  if  the  occasion  requires  it,  that  the  order  is  received 
and  is  having  attention,  but  cannot  be  filled  until  the 
past  due  account  is  paid. 

Short  letters  are  the  most  effective.  A  man  can  grasp 
the  contents  of  a  short  letter  in  a  hurry,  but  if  an  effort 
is  required  to  read  a  long  one,  it  is  cast  aside  until  more 
leisure  time  is  had  for  reading  it.  Catchy  expressions 
are  also  of  an  advantage  at  times;  also,  pretexts  are 
frequently  helpful;  for  instance,  in  the  summer  season 
at  vacation  time  frequently  a  debtor  is  amused  and 
his  attention  is  attracted  by  an  opening  sentence,  as 
follows:  "Will  you  help  me  get  my  vacation?"  This 
sentence  can  be  followed  by  stating  that,  if  so,  a  cus- 
tomer can  remit  by  a  certain  time,  when  the  collector 
expects  to  go  on  his  vacation.  It  is  rarely  ever  a  good 
practice  so  far  as  effectiveness  is  concerned  to  beseech 
a  customer  to  pay — positive  statements  are  always  more 
fruitful  of  results.  A  dictator  should  adopt  a  mental 
attitude  in  writing  collection  letters  that  prompt  at- 
tention is  expected,  and  that  thought  should  permeate 


FOLLOW-UP   SYSTEM  119 

the  whole  letter;  in  fact,  the  closing  portion  of  it  should 
state  that  prompt  attention  is  expected. 

As  a  general  rule,  also,  it  is  not  an  effective  method 
to  speak  too  much  of  a  favor  on  the  part  of  the  debtor 
in  case  he  remits.  He  should  instead  be  impressed 
with  the  fact  that  he  is  in  arrears  on  obhgations,  and  in 
many  instances  good  results  can  be  obtained  by  calUng 
attention  to  the  fact  that  if  his  orders  were  neglected 
by  the  firm  as  his  accounts  are  being  neglected,  he  would 
not  have  a  very  good  opinion  of  the  house.  Some  col- 
lection campaigns  should  have  for  their  theme  with  cer- 
tain classes  of  delinquents  that  failure  to  pay  the  obhga- 
tion  has  been  due  to  carelessness  or  oversight.  In 
that  case,  sending  a  duplicate  statement  with  a  self- 
addressed  envelope  enclosed  is  frequently  effective. 
There  is  a  great  deal  of  suggestion  conveyed  in  the 
sending  of  a  self-addressed  envelope.  This  suggestion 
may  be  further  impressed  upon  the  debtor's  mind  by 
the  use  of  a  blank  check,  which  will  be  referred  to  in  a 
later  chapter. 

Terse,  snappy,  forceful  letters  should  be  used,  rather 
than  long,  verbose,  repetitive,  unimpressive,  formlike 
letters.  The  debtor  should  be  impressed  more  with 
his  sense  of  individual  responsibility,  his  sense  of  obliga- 
tion, his  sense  of  duty  or  neglect  of  duty  and  the  mutual- 
ity involved,  rather  than  imbued  with  the  thought  that 
when  he  does  pay  his  account  he  is  extending  some  favor, 
and  the  strain  of  letters  should  be  such  as  to  endeavor 


120  MERCANTILE   CREDITS   AND    COLLECTIONS 

in  every  way  possible  to  cure  the  customer  of  the  thought 
that  every  time  he  is  pressed  for  money  on  an  obhga- 
tion  that  he  ought  to  pay  without  pressure,  all  that  it 
is  necessary  for  him  to  do  is  to  indicate  that  he  will 
transfer  his  business  elsewhere.  The  collector  should 
give  his  letters  a  distinctive,  individual  appearance, 
and  they  should  be  full  of  ginger. 


CHAPTER  III 

UNUSUAL,     UNIQUE     AND     RESOUKCEFUL     METHODS 

It  is  necessary  that  a  successful  credit  man  or  col- 
lector should  be  resourceful.  Frequently  an  unex- 
pected condition  has  arisen  suddenly  in  the  debtor's 
affairs  that  strikes  consternation  in  the  heart  of  his 
creditors  and  cause  no  end  of  concern  to  the  credit  man 
or  collector  representing  an  institution  holding  a  claim 
against  such  debtor.  Even  though  a  man  may  be  well 
poised  he  is  apt  to  get  panicky,  and  the  fear  of  loss  may 
jeopardize  his  ability  to  use  calm  and  deliberate  judg- 
ment, or  interfere  with  his  abihty  to  determine  just 
what  is  the  best  course  to  pursue. 

One  of  the  greatest  attributes  one  exercising  the 
function  of  a  collector  can  have  is  foresight — not  in 
the  sense  of  having  the  foresight  of  a  prophet,  nor  in 
the  sense  that  future  contingencies  must  be  forecasted, 
but  in  the  sense  that  if  given  all  the  present  facts  con- 
cerning the  finances,  obligations  and  operations  of  a 
business,  what  the  probable  condition  of  that  business 
will  be  at  a  certain  time  in  the  future.  The  time  to 
weigh  this  condition  thoroughly  is  at  the  time  of  de- 
fault in  payment.  If  full  information  shows  there  is 
some  justifiable  explanation  or  reason  for  default  which 

121 


122  MERCANTILE   CREDITS  AND   COLLECTIONS 

is  of  a  temporary  character  and  which  in  the  usual 
course  of  events  will  be  ahnost  certain  to  be  overcome, 
there  is  no  great  cause  for  alarm;  but  if  knowledge  of  all 
existing  facts  shows  a  danger  signal  ahead,  the  credit 
man  or  collector  is  then  obliged  to  promptly  use  his 
forethought  and  judgment. 

Some  suggestions  are  offered  in  this  chapter  as  to 
ensuring  the  ultimate  payment  of  an  obligation  from 
an  involved  debtor  by  obtaining  security.  The  line  of 
approach  must  naturally  and  necessarily  be  largely 
determined  by  the  existing  circumstances,  the  character 
of  the  business  and  other  varying  factors.  For  this 
reason  the  suggestions  here  offered  are  not  offered  in 
the  order  that  should  be  followed  in  an  attempt  to 
obtain  the  necessary  security,  but  are  offered  in  ad- 
dition to  some  of  those  usually  followed,  existing 
circumstances  to  determine  which  of  the  sugges- 
tions, if  any,  should  be  tried  out  on  the  defaulting 
debtor. 

The  usual  defaulting  debtor  owes  an  open  account. 
If  the  credit  man  or  collector  feels  that  an  extension 
can  be  safely  granted  on  such  an  account  for  a  definite 
time,  with  reasonable  assurance  that  at  the  end  of  the 
extension  the  debtor  will  be  able  to  meet  his  engage- 
ment, either  an  unsecured  or  an  endorsed  promissory 
note  may  be  accepted,  bearing  interest.  Experience 
has  shown  this  is  a  good  general  rule  to  follow.  The 
execution  of  a  note  impresses  the  debtor  with  the  fact 


RESOURCEFUL  METHODS  123 

that  the  obhgation  must  be  met  at  the  time  he  has 
agreed  to  pay  it,  if  extended,  and  if  there  is  any  mis- 
giving on  his  part  as  to  his  abiUty  to  pay  the  obhgation 
when  the  extension  has  expired  it  will  usually  be  voiced 
at  the  time  the  note  is  executed,  for  then  the  debtor  is 
face  to  face  with  a  very  definite  and  concrete  obligation. 
Furthermore,  he  realizes  the  fact  that  he  is  being 
accommodated,  and  very  few  debtors  will  object  to 
paying  the  current  rate  of  interest  for  accommodation. 
Many  credit  men  provide  in  the  form  of  note  used  that 
the  rate  of  interest  shall  be  the  prevailing  current  rate, 
but  that  after  maturity  the  obligation  shall  draw  in- 
terest at  12%,  or  even  higher,  so  that  in  case  the  note 
must  be  carried  after  maturity  the  debtor  must  pay 
something  more  than  a  mere  prevailing  market  rate 
to  money  borrowers.  This  is  natural,  as  merchants 
are  not  in  the  banking  business. 

A  promissory  note  should  also  be  taken  from  the 
contentious  type  of  debtor  if  he  seeks  an  extension. 
Many  complaints  are  made  on  a  pretext  to  gain  time, 
and  if  it  is  thought  the  part  of  wisdom  to  grant  the 
extension  sought,  a  note  should  be  taken  to  forever 
cut  off  any  further  claim  from  that  debtor.  Further- 
more, if  legal  action  should  be  required  later,  it  is  a 
simple  matter  to  prove  up  the  obligation  in  court  if  it 
is  in  the  form  of  a  promissory  note,  the  only  real  defense 
to  a  promissory  note  being  lack  of  consideration  or 
fraud,  whereas  proving  the  order,  shipment  or  receipt 


124  MERCANTILE   CREDITS   AND    COLLECTIONS 

of  the  goods  on  a  long  open  book  account  is  in  case  of  a 
contest,  often  difficult. 

The  note  should  in  all  cases  provide  that  the  debtor 
should  pay  attorney's  fees, — either  10%  of  the  principal 
or  a  statement  that  he  is  obligated  to  pay  all  attorney's 
fees  accrued  in  the  collection  thereof.  Such  an  obUga- 
tion  on  the  part  of  the  debtor  may  not  be  legally  en- 
forced in  all  jurisdictions,  but  in  most  states  such  a 
condition  in  a  note  has  been  held  to  be  good;  even, 
however,  where  there  may  be  some  question  about 
such  a  provision  it  is  desirable  to  have  it  in  the  note, 
as  many  debtors  are  not  aware  of  the  legality  of  such  a 
clause,  and  it  furnishes  a  credit  man  with  a  wonderful 
argument  to  be  able  to  say  that  he  hopes  the  debtor 
will  not  compel  him  to  place  the  matter  in  the  hands 
of  an  attorney  to  enforce  payment,  which  not  only  will 
add  the  burden  of  court  costs  to  the  debtor  but  compel 
hi'm  to  pay  for  services  of  his  attorney  and  also  compel 
him  to  pay  your  attorney  as  well.  Very  few  men  are 
so  obstinate,  regardless  of  temperament,  that  they  will 
deliberately  permit  a  creditor  to  take  legal  action  to 
enforce  payment  of  a  note  when  they  know  they  are 
obHged  to  pay  both  the  lawyer  prosecuting  the  claim 
and  the  lawyer  defending  the  claim  and  court  costs  as 
well.  The  following  form  of  promissoiy  note  has  been 
used  and  found  satisfactory.  Attention  is  called  to  the 
printed  waiver  on  the  back  thereof,  as  this  is  a  decided 
advantage  to  the  creditor  if  the  note  is  endorsed. 


RESOURCEFUL  METHODS  125 

(NOTE  FORM) 

$ 19...   No 

after  date  for  value  received promise  to 

pay  to  John  Doe  &  Co.,  Inc.,  or  order  at 

Dollars   with   interest   from   date 

until  paid,  at  the  rate  of per  cent 

per  annum,  payable  quarterly;  and  in  case  of  default  in  payment 
of  interest  when  due,  both  principal  and  interest  shall  immediately 
become  due  and  payable  at  the  option  of  the  holder  of  this  note. 
Should  this  note  be  placed  in  the  hands  of  an  attorney  for  collec- 
tion   agree  to  pay  an  additional  sum  of  ten  per  cent  on 

principal  as  attorney's  fees.     Principal  and  interest  payable  in 

gold  coin  of  the  United  States. 

Address 


(WAIVER.)  (On  Back  of  Note) 
I,  (or  we)  hereby  guarantee  payment,  jointly  and  severally,  of 
the  within  note  or  any  renewal  or  extension  thereof  and  all  expense 
of  collection  thereof  and  all  expense  incurred  in  enforcing  this 
guaranty  and  waive  demand,  presentment  for  payment,  protest, 
and  notice  of  protest,  and  consent  that  the  time  for  payment  may 
be  extended  without  notice  to  me  (or  us). 

If  it  is  determined  that  some  security  must  be  taken, 
a  collateral  note  should  be  used.  The  character  of 
security  demanded  may  be  stocks  or  bonds,  or  some- 
times a  bill  of  sale  to  personal  property  may  be  de- 
manded as  collateral,  or  a  deed  to  real  property.  The 
average  merchant  does  not  usually  have  either  stocks 
or  bonds  that  he  can  furnish  as  collateral,  and  a  bill 


126  MERCANTILE   CREDITS   AND    COLLECTIONS 

of  sale  to  personal  property  attached  to  a  collateral 
note  may  not  be  enforcible.  Nevertheless,  if  the  bill 
of  sale  is  recorded,  collection  may  be  enforced  by  selling 
the  personal  property  as  property  under  a  chattel  mort- 
gage is  sold  but  without  as  much  legal  procedure,  and  if 
the  form  of  collateral  note  hereafter  outlined  is  used, 
even  a  suit  to  foreclose  may  often  be  avoided. 

Likewise  a  deed  to  real  property  attached  to  a  col- 
lateral note  may  not  be  always  legally  enforcible  with- 
out going  through  a  foreclosure,  but  if  the  deed  is 
recorded  the  property  may  always  be  foreclosed  upon 
as  though  the  instrument  had  been  a  mortgage,  and  if 
there  is  no  definite  agreement  recited  in  the  note  in  the 
form  of  a  defeasance  to  the  effect  that  the  holder  will 
return  the  deed  when  the  obligation  is  paid,  it  is  often 
possible  to  merely  record  the  deed  upon  default  in  pay- 
ment of  the  collateral  note  and  acquire  title  to  the  prop- 
erty, by  holding  a  sale,  either  public  or  private,  in 
accordance  with  the  terms  of  such  note.  Even,  how- 
ever, though  it  would  not  be  legally  possible  to  do  this, 
the  advantage  obtained  by  taking  this  form  of  security 
instead  of  a  chattel  or  real  estate  mortgage  is  that  the 
debtor  is  likely  unaware  of  his  rights,  and  in  the  behef 
that  unless  he  pays  the  obligation  he  will  lose  title  to 
the  personal  property  represented  by  the  bill  of  sale, 
or  lose  title  to  the  real  property  represented  by  the 
deed,  with  all  his  equity  of  redemption  cut  off,  he  will 
promptly  discharge  the  obligation. 


RESOURCEFUL  METHODS  127 

The  form  of  collateral  note  to  be  used  should  be  the 
broad  form  used  by  the  larger  banks,  most  of  which 
are  the  same  in  tenor.  Such  forms  provide  that  in  the 
event  of  default  the  holder  of  the  collateral  may  sell 
the  security  without  any  advertisement,  demand  or 
notice.  Of  course,  it  is  not  necessary  for  the  credit  man 
to  follow  any  cut-throat  practice  and  sell  some  debtor 
out  in  a  harsh  manner,  but  the  holding  of  security  in 
that  form  will  enable  you  to  make  collection  much 
quicker  than  if  you  were  obhged  to  go  through  the 
formahty  of  selhng  the  security  by  demand,  advertise- 
ment and  notice  as  a  pledge.  Furthermore,  the  very 
publicity  of  the  sale  might  be  disastrous  to  all  con- 
cerned; other  creditors  might  be  perfectly  willing  to 
extend  time  to  this  debtor,  but  thinking  that  some 
other  creditors  were  taking  advantage,  or  that  they 
were  selling  out  securities,  they  would  take  steps  to 
have  the  debtor  thrown  into  bankruptcy. 

Such  collateral  note  forms  also  provide  that  the 
holder  may  demand  additional  security  if  the  value  of 
the  security,  in  the  judgment  of  the  holder  thereof, 
falls  below  the  amount  of  the  obligation,  or  deems  it 
to  his  interest  to  call  for  additional  security,  and  the 
note  form  provides  that  in  the  event  of  a  sale,  any 
surplus,  after  deducting  the  cost  of  sale  will  be  returned 
to  the  maker  of  the  note;  and  the  maker  also  is  of 
course  liable  for  any  deficiency  in  the  event  that  the 
security  sold  does  not  satisfy  the  obHgation.     The 


128  MERCANTILE   CREDITS   AND   COLLECTIONS 

holder  of  the  note  credits  on  the  note  the  amount 
reahzed  from  the  sale  of  the  securities  and  a  judgment 
may  be  obtained  for  the  deficiency. 

A  form  of  collateral  note  which  has  been  found  to 
meet  all  conditions,  and  which  is  good  for  all  purposes, 
follows: 

(NOTE) 

No 

$ Chicago,  111., 19. .. 

after  date,  for  value  re- 
ceived, I  promise  to  pay  to  the  order  of  John  Doe  &  Co.,  at. . . . 

Dollars, 

with  interest  at  the  rate  of per  cent, 

per  annum  from  date  until  paid. 

Sign 

Here 

The  undersigned  has  deposited  with  said  John  Doe  &  Co.,  as 
collateral  security  for  the  payment  of  the  above  note,  and  of 
every  other  liability  or  habilities,  either  direct  or  contigent,  now 
owing  or  which  may  hereafter  be  owing,  whether  now  or  here- 
after contracted,  of  the  undersigned  to  said  payee,  or  to  the 
legal  holder  thereof,  the  following  property,  viz.: 


With  the  right  on  the  part  of  the  said  John  Doe  &  Co.,  or  the  legal 
holder  hereof  from  time  to  time  to  call  for  additional  security  of 
such  kind  and  value  as  will  be  satisfactory  to  said  John  Doe  &  Co., 


RESOURCEFUL  METHODS  129 

or  the  legal  holder  hereof,  and  on  failure  to  respond,  or  if  in  the  judg- 
ment of  said  John  Doe  &  Co.,  or  the  legal  holder  hereof,  said  security, 
or  any  additions  thereto  or  substitutes  therefor  or  any  part  thereof, 
shall  have  depreciated  in  value,  then  the  whole  of  the  above  note 
shall  be  deemed  immediately  payable  at  the  election  of  the  said 
John  Doe  &  Co.  or  the  legal  holder  hereof,  with  full  power  in  said 
John  Doe  &  Co.,  or  the  legal  holder  hereof  on  maturity  thereof, 
either  by  its  terms  or  by  election  as  aforesaid,  or  on  the  non-pay- 
ment of  any  of  the  other  liabilities  above  mentioned,  to  at  any  time, 
and  from  time  to  time,  sell,  assign  and  deliver  the  whole  of  said 
property  and  all  additions  thereto  and  substitutes  therefor,  or  any 
part  of  said  property,  additions  and  substitutes,  at  any  public 
or  private  sale,  at  the  option  of  said  John  Doe  &  Co.,  or  the  legal 
holder  hereof,  and  without  advertising  the  same  and  without  notice 
to  the  undersigned,  and  with  the  right  of  said  John  Doe  &  Co.,  or 
the  legal  holder  hereof,  to  be  a  purchaser  at  any  public  sale  or  sales; 
and  in  the  event  of  any  sale  or  purchase  hereunder  no  matter  by  or 
to  whom  made,  all  notice  thereof,  and  any  and  all  equity  or  right 
of  redemption,  whether  before  or  after  sale  hereunder  is  hereby 
expressly  waived;  and,  after  deducting  all  legal  and  other  costs  and 
expenses,  including  reasonable  attorneys  fees,  from  the  proceeds 
of  such  sale  or  sales,  to  apply  the  remainder  on  any  one  or  more  of 
said  liabilities,  whether  due  or  not,  as  said  John  Doe  &  Co.,  or  the 
legal  holder  hereof  shall  deem  proper  (making  rebate  of  interest  on 
any  demands  not  matured) ,  and  return  the  surplus,  if  any,  to  the 
undersigned.  Said  John  Doe  &  Co.,  or  the  legal  holder  hereof,  may 
at  its,  his  or  their  discretion  enforce  the  collection  of  said  security, 
additions  thereto  and  substitutes  therefor  by  suit  or  otherwise, 
and  may  surrender,  compromise,  release,  renew,  extend  or  exchange 
all  or  any  of  the  same.  Said  John  Doe  &  Co.,  or  the  legal  holder 
hereof  is  hereby  authorized  and  empowered  at  any  time  to  apply 
to  the  payment  of  any  liability  or  liabilities,  whether  the  same  be 


130         MERCANTILE   CREDITS  AND   COLLECTIONS 

due  or  not,  of  the  undersigned,  to  said  John  Doe  &  Co.,  or  to  the 
legal  holder  hereof,  whether  the  same  be  due  or  not,  all  property 
real  and  personal,  of  every  kind  and  description,  including  balances, 
credits,  collections,  moneys,  drafts,  checks,  notes,  bills,  or  accounts 
of  the  undersigned. 

Sign 
Here 

Address 

The  printed  waiver  on  the  back,  eliminating  protest, 
etc.,  may  be  the  same  as  in  the  case  of  unsecured 
notes,  outlined  previously  in  this  chapter,  or  may 
simply  state: 

"The  undersigned  endorsers  hereby  waive  all  presentation,  de- 
mand, notice  of  non-payment,  protest  and  notice  of  protest. 


The  average  merchant,  however,  has  his  liquid  assets 
most  largely  in  the  form  of  open  book  accounts,  and 
it  is  to  this  form  of  security  that  the  credit  man  or 
collector  must  generally  look  for  protection.  A  practice 
which  seems  to  be  very  rarely  followed  is  that  of  de- 
manding a  collateral  note  with  an  assignment  of  cer- 
tain of  the  debtor's  accounts  against  his  customers 
as  collateral.  Assignments  of  accounts  in  that  form  are 
valid  in  practically  every  jurisdiction.  The  debtor 
need  not  be  embarrassed  with  his  customers,  because 
it  is  not  usually  necessary  to  notify  the  customer  of  the 
debtor  that  you  hold  an  assignment  of  the  account  and 


RESOURCEFUL   METHODS  131 

that  remittance  must  be  made  to  you.  The  debtor's 
customers  can  make  remittance  direct  to  the  debtor, 
but,  of  course,  he  (the  debtor)  is  obhged  to  remit  you, 
and  in  that  sense  he  is  virtually  acting  as  your  agent. 
He  might  be  criminally  liable  if  he  failed  to  properly 
account  for  such  collections.  The  usual  assignment 
is  as  follows: 

"FOR  VALUE  RECEIVED,  I  (or  we)  hereby  sell,  assign,  trans- 
fer, and  set  over  unto 

all  my  (our)  right,  title  and  interest  in  and  to  the  within  (or  annexed, 
or  foregoing)  account." 


(Signature.) 

If  there  is  any  question  about  the  debtor's  honesty 
or  integrity,  the  collateral  note  can  be  deposited  in 
some  bank,  together  with  the  assigned  accounts,  and 
the  customers  of  the  debtor  can  be  notified  by  the  bank 
to  remit  to  them.  The  margin  of  security  on  assigned 
accounts  over  the  amount  of  the  obligation  owing  by 
the  debtor  must  be  determined  by  the  character  of  the 
business  of  the  debtor.  If  he  is  known  to  be  lax  in 
extending  credits,  the  margin  should  be  larger  than  if  he 
is  conservative.  If  some  of  the  obligations  owing  your 
debtor  are  in  the  shape  of  notes,  he  should  endorse 
the  notes  over,  and  such  notes  should  be  attached  to 
the  collateral  note  as  security,  and  their  collection  can 
be  handled  in  the  same  way  as  the  collection  of  assigned 
accounts  is  handled. 


132  MERCANTILE   CREDITS   AND    COLLECTIONS 

If  the  extension  sought  is  short,  and  the  debtor  is 
known  to  be  a  good  promiser  but  a  poor  executor  of 
promises,  it  is  desirable  to  suggest  the  giving  of  a  post- 
dated check.  This  might  be  resented  by  many  debtors, 
but  if  diplomatically  handled  it  should  not  be.  The 
credit  man  or  collector  can  say  he  is  about  to  make 
up  a  report  of  past  due  accounts  to  the  President  or 
some  other  executive  officer  of  the  company  and  does 
not  wish  to  show  that  particular  account  overdue,  and 
that  if  a  check  is  given  dated  a  little  ahead  his  name 
can  be  left  off  the  list. 

It  is  not  very  often  that  your  customer  will  permit 
his  check  to  be  dishonored.  If  he  does,  your  claim  is 
a  very  much  better  one  than  when  it  was  an  open  ac- 
count, and  while  it  is  very  rarely  a  criminal  offense  to 
default  in  payment  on  a  post-dated  check  some  debtors 
are  not  aware  of  this  fact  and  will  hasten  to  make  good 
a  check  outstanding  against  them  whether  or  not  they 
are  criminally  liable,  because  they  realize  that  there 
can  be  no  greater  reflection  on  their  general  credit  than 
to  have  it  reported  that  they  failed  to  make  good  out- 
standing checks. 

Occasionally  a  credit  man  or  collector  is  found  with 
a  check  on  his  hands  that  is  returned  unpaid — some- 
times post-dated  and  sometimes  bearing  the  current 
date,  given  in  the  ordinary  course  of  business — with 
the  reason  for  nonpayment  endorsed  by  the  bank  "in- 
sufficient funds,"  and  in  many  bankruptcy  proceedings 


RESOURCEFUL  METHODS  133 

creditors  are  found  holding  checks  dishonored  for  that 
very  reason.  A  practice  that  seems  to  be  Httle  followed 
is  that  of  determining  how  much  short  the  check  is, 
and  then  depositing  to  the  credit  of  the  debtor  enough 
money  to  make  the  check  good. 

For  instance,  if  you  are  given  a  check  for  $100.00, 
by  diplomatically  handling  the  matter  with  the  bank 
you  can  find  out  how  much  the  debtor's  account  i^ 
short.  If  you  cannot  discuss  the  matter  with  an  out 
of  town  bank,  possibly  you  can  send  the  check  to  a 
traveling  salesman  and  have  him  call  at  the  bank  and 
get  him  to  ascertain  how  much  the  account  is  short. 
In  the  case  recited,  if  you  learn,  for  instance,  that  there 
is  but  $90.00  on  deposit,  while  you  have  a  $100.00 
check,  you  can  deposit  $10.00  to  the  customer's  credit, 
or  have  the  traveling  man  do  it,  and  the  check  will  be 
cleared.  Banks  will  not  ordinarily  state  just  how 
much  money  a  customer  of  theirs  has  on  deposit,  but 
if  it  is  stated  to  them  that  you  hold  a  check  drawn  on 
them  which  has  been  returned  unpaid  by  them  and 
which  you  believe  was  issued  by  the  maker  of  the  check 
without  having  kept  an  accurate  account  of  his  balance 
at  the  bank,  or  due  to  an  error  in  calculation  on  his 
part,  and  that  you  would  like  to  protect  him  against 
a  dishonored  check,  the  bank  will  ordinarily  tell  you 
approximately  how  much  money  must  be  deposited 
to  make  the  check  good,  or  give  you  some  idea  of  what 
the  bank  balance  is. 


134  MERCANTILE    CREDITS   AND    COLLECTIONS 

The  matter  can  be  explained  to  your  customer  by 
assuring  him  that  it  was  not  your  desire  to  have  his 
credit  hurt  by  having  a  dishonored  check,  so  that  you 
took  the  liberty  of  depositing  enough  money  to  his 
credit  in  the  bank  to  make  the  check  good.  You  can 
tell  him  that  you  have  charged  the  cash  advanced  to 
his  account  and  state  that  you  realize  he  appreciates 
your  thoughtfulness  and  ask  that  as  soon  as  convenient 
he  send  you  a  remittance  for  the  amount  of  cash  you 
have  laid  out  to  protect  his  credit.  In  the  case  above 
recited,  if  he  goes  through  bankruptcy  before  you 
collect  the  ten  dollars  cash  advanced,  you  have  a 
$10.00  claim  against  him  instead  of  a  1100.00 
claim. 

Even  though,  however,  you  may  find  the  balance  to 
be  deposited  is  too  great  to  make  the  check  good,  or 
even  though  you  may  be  unable  to  find  out  from  the 
bank  how  much  must  be  deposited  to  make  up  the 
deficiency,  you  are  in  a  very  much  better  position  in 
having  a  dishonored  check  as  compared  to  having  a 
past  due  open  account,  and  the  percentage  of  unpaid 
post-dated  checks  is  small  compared  to  those  that  are 
paid  or  those  that  can  be  made  good  by  depositing  a 
reasonable  sum  to  cover  the  deficiency,  and  it  is  safe 
to  say  that  most  of  the  deposits  made  to  cover  those 
deficiencies  are  later  taken  care  of.  Furthermore, 
experience  has  shown  that  this  procedure  will  demand 
the  respect  of  your  customers  more  than  if  you  allowed 


RESOURCEFUL  METHODS  135 

them  to  become  lax  in  the  handling  of  their  overdue 
account. 

A  great  deal  of  difficulty  is  experienced  in  collecting 
small  past  due  accounts,  and  the  use  of  blank  checks 
is  often  very  helpful  in  making  collection  of  such 
accounts.  The  practice  followed  is  to  have  some 
blank  checks  printed  with  the  name  of  the  bank  left 
blank,  and  with  a  stub  attached,  and  the  stenog- 
rapher can  fill  out  the  check  for  the  amount  of  the 
small  account  and  date  it,  and  fill  out  the  stub,  and 
enclose  a  self-addressed  envelope,  with  a  general  form 
letter  calling  your  customer's  attention  to  the  fact 
that  all  he  need  do  is  write  in  the  name  of  his  bank, 
sign  check,  enclose  it  in  the  self-addressed  envelope 
and  send  it  back.  A  letter  transmitting  this  should 
be  captioned,  ''A  new  service  for  our  customers,"  or 
something  similar,  so  that  the  debtor  is  impressed  with 
the  fact  that  this  procedure  is  intended  to  better  serve 
him  and  make  it  more  convenient  for  him  to  pay. 
Those  who  do  not  sign  the  check  and  send  it  back, 
will  usually  send  one  of  their  own,  and  the  work  in- 
volved in  filling  out  checks  of  this  character  by  the 
stenographer  is  much  less  than  trying  to  collect  small 
past  due  accounts  by  the  usual  collection  methods. 
A  satisfactory  form  of  blank  check  and  stub  is  here 
shown: 


136  MERCANTILE    CREDITS   AND   COLLECTIONS 


CHECK  STUB 
19.. 

19.. 

Bank, 

To  John  Doe  &  Co. 
For 

of 

Pay  to  John  Doe  &  Co.,  or  Order,  $ 

Dollars. 

Another  procedure  that  is  helpful  in  collecting  past 
due  accounts  is  to  charge  interest,  and  charge  it  monthly, 
and  send  the  bill  for  the  interest  every  month,  and 
have  it  show  on  the  statement  every  month.  At  times 
this  procedure  may  irritate  a  debtor,  and  there  may 
be  cases  where  it  is  undesirable  to  follow  the  rule,  but 
those  customers  who  are  exceedingly  touchy,  or  who 
might  withdraw  their  business  if  annoyed  with  monthly 
bills  for  interest,  can  be  excepted.  If  some  good  custo- 
mer is  charged  interest  or  sent  interest  bills  and  highly 
resents  it,  the  matter  can  be  explained  as  an  oversight 
on  the  part  of  the  bookkeeping  department  in  going 
through  the  ledgers  making  up  the  monthly  interest 
bills,  by  stating  that  it  was  an  oversight  to  have  in- 
cluded that  particular  account. 

Obtaining  an  individual  guarantee  on  an  obligation 
already  owing  is  substantially  the  same  proposition 
as  obtaining  a  guarantee  on  an  account  before  time  of 
shipment,  excepting  that  there  must  be  adequate  con- 
sideration provable  for  the  giving  of  a  guarantee  on  an 
obligation  that  has  already  been  incurred,  as  has  been 


RESOURCEFUL  METHODS  137 

fully  outlined  in  the  chapter  on  the  subject  of  guar- 
antees. However,  this  is  a  form  of  security  that  a 
credit  man  or  collector  should  not  over-look  in  at- 
tempting to  get  an  obligation  in  such  shape  as  to  insure 
ultimate  recovery.  If  is  not  only  desirable  to  see  that 
the  consideration  for  the  giving  of  such  a  guarantee 
is  sufficient,  but  it  is  a  good  rule  to  be  siire  that  ex- 
tensions of  any  character  are  given  only  for  an  ade- 
quate consideration — the  consideration  usually  being 
some  form  of  security. 

If  a  debtor  does  not  promptly  respond  to  letters  asking 
for  security,  the  follow-up  should  be  sent  by  registered 
mail.  The  fact  that  a  letter  is  registered  usually  im- 
presses the  receiver  thereof  with  the  thought  that  it 
is  valuable  or  requires  special  attention.  Furthermore, 
he  knows  the  sender  is  going  to  get  a  receipt  showing 
that  he  received  the  letter.  This  cuts  off  any  excuse 
for  failure  to  respond.  In  some  instances  letters  should 
be  sent  by  special  delivery,  or  they  may  be  registered 
and  a  special  delivery  stamp  attached  also,  which  gives 
the  receiver  the  idea  that  the  matter  is  of  extreme  im- 
portance and  must  have  prompt  attention.  If  the  delay 
might  be  too  great  in  getting  your  follow-up  message 
to  the  customer  by  registered  letter,  or  special  deUvery 
letter,  it  is  desirable  to  use  the  telegraph;  or,  if  you 
have  sent  a  registered  letter  or  special  delivery  letter 
and  have  received  no  reply  to  that  form  of  appeal,  then 
a  telegram  should  be  sent  demanding  immediate  at- 


138  MERCANTILE    CREDITS   AND    COLLECTIONS 

tention.  Not  only  is  the  debtor  then  brought  face  to 
face  with  a  reahzation  that  you  are  insistent  and  pos- 
itively demand  that  he  give  the  matter  attention,  but 
he  does  not  know  but  that  the  contents  of  the  message 
may  reach  the  eyes  of  others  in  a  way  that  might  still 
further  embarrass  him. 

If  all  efforts  to  obtain  security  have  failed,  and  the 
account  is  in  a  precarious  condition,  efforts  should  be 
made  to  offset  the  obUgation  by  purchasing  from  the 
debtor  something  that  can  be  resold.  Such  an  offset, 
in  the  absence  of  fraud,  is  good,  even  if  a  bankruptcy 
petition  should  be  filed  shortly  afterwards.  For  in- 
stance, if  your  customer  runs  a  lumber  mill,  purchase 
the  lumber  even  if  you  know  you  have  no  use  for  it  and 
sell  it  at  a  slight  discount  if  you  anticipate  a  loss  on 
his  account ;  in  fact,  no  matter  what  the  debtor  produces, 
or  resells,  if  there  is  any  reasonable  market  for  it  you 
can  usually  find  that  market  and  make  a  ready  sale  of 
the  product  by  allowing  some  slight  discount  under 
the  market.  This  is  much  better  than  to  find  your 
debtor  is  so  involved  that  the  account  will  drift  along, 
with  the  prospect  that  you  will  ultimately  face  a  much 
larger  loss  than  the  shght  discount  you  know  you  will 
lose  if  you  accept  the  wares  of  your  customer  to  apply 
as  a  credit  on  your  claim  against  him.  This  procedure 
will  often  enable  you  to  realize  even  after  some  other 
creditor  has  obtained  security. 

If  a  debtor  is  contrary,  some  dummy  may  be  in- 


RESOURCEFUL  METHODS  139 

duced  to  purchase  some  goods  along  these  Unes,  and 
your  claim  can  be  assigned  to  the  dummy.  The  dummy 
cannot  be  required  by  your  customer  to  pay  the  same 
because  he  will  have  an  offset  against  your  customer 
in  the  shape  of  the  account  you  assigned  to  him.  This 
is  a  good  suggestion  to  give  to  attorneys  when  they 
have  claims  against  involved  debtors  in  all  cases  where 
it  would  seem  unwise  to  precipitate  matters  by  com- 
mencing legal  proceedings. 

Should  your  customer  later  get  on  his  feet  he  will 
likely  appreciate  the  fact  that  you  tried  to  help  him 
out  when  he  was  involved,  by  trading  out  the  account, 
and  he  should  be  glad  to  know  when  he  was  in  trouble 
you  helped  him  out  by  accepting  his  goods,  on  which 
he  made  a  profit,  towards  the  liquidation  of  his  account, 
at  a  time  when  it  would  have  seriously  embarrassed 
him  to  have  demanded  payment  in  money. 

Lost  debtors  may  be  traced  in  various  ways.  Some 
of  the  methods  followed  are  to  send  a  registered  letter 
to  the  last  known  address,  with  a  demand  for  a  return 
card,  and  the  return  card  will  show  when  it  gets  back, 
the  postmark  of  the  city  at  which  the  letter  was  de- 
livered, even  though  the  debtor  may  have  moved  away. 
This  is  especially  so  if  the  registered  letter  is  marked 
"deliver  to  addressee  only,"  for  then  the  postoffice 
will  not  deliver  the  registered  letter  to  any  other  mem- 
bers of  the  debtor's  family  or  to  any  of  his  agents. 
Lost  debtors  may  sometimes  be  traced  through  busi- 


140  MERCANTILE   CREDITS   AND   COLLECTIONS 

ness  associates,  through  relatives,  or  through  a  personal 
advertisement  in  the  newspapers. 

The  foregoing  suggestions  will  probably  call  to  the 
mind  of  the  credit  man  or  collector  other  resourceful 
methods  that  the  circumstances  of  the  case  will  in- 
dicate as  being  the  proper  ones  to  pursue,  but  the  most 
satisfactory  rule  is  to  require  some  form  of  security 
on  the  account  as  soon  as  there  is  a  default  in  payment. 
On  the  obtaining  of  security  an  extension  should  be 
granted  in  a  definite  way  and  not  permit  the  delinquent 
to  get  the  impression  that  the  account  can  run  along, 
even  though  secured,  and  be  paid  whenever  it  suits 
his  convenience. 


CHAPTER  IV 

COMMERCIAL      ARBITRATION — ADJUSTMENT      BUREAUS — 
COLLECTION   AGENCIES 

There  are  many  instances  where  a  controversy  can 
be  arbitrated  more  satisfactorily  to  both  parties  than 
the  same  controversy  can  be  litigated.  The  processes 
of  Htigation  are  long  and  tedious  and  are  very  expensive 
as  a  rule.  In  some  sections  where  court  calendars  are 
crowded  a  trial  may  not  be  reached  for  several  years. 
Furthermore,  in  a  law  suit  the  issue  is  disposed  of  by 
strict  technical  legal  procedure  and  strictly  technical 
legal  reasoning.  How  much  more  satisfactory  it  would 
be  in  many  cases  if  a  credit  man  or  collector  would 
enter  into  an  arbitration  agreement  with  a  person  or 
corporation  with  whom  a  controversy  exists. 

Each  party  selects  some  competent  business  man  of 
sound  judgment,  or  some  reputable  lawyer  in  high 
standing  if  the  problem  involved  is  thoroughly  legal,  and 
if  the  two  arbitrators  cannot  agree  they  select  a  third, 
called  the  umpire;  then  they  hold  a  meeting,  procure 
the  evidence  in  an  orderly  yet  expeditious  manner,  and 
decide  the  equities  of  the  situation  from  a  good,  com- 
monsense  standpoint.  A  decision  of  the  two  is  final. 
Compare  this  method  with  the  method  of  htigating 

141 


142  MERCANTILE   CREDITS   AND   COLLECTIONS 

these  same  matters,  out  of  which  htigation  much  bitter- 
ness grows  and  often  counterclaims  for  damages  are 
set  up  that  the  customer  of  the  house  never  really  in- 
tended to  rely  upon  until  urged  to  do  so  by  some  at- 
torney seeking  to  set  up  a  defense  either  for  the  pur- 
pose of  gaining  time  or  for  the  purpose  of  obtaining  a 
more  reasonable  settlement — and  frequently  this  count- 
erclaim is  set  up  without  any  real  regard  as  to  what 
is  right  or  what  is  wrong. 

Of  course,  there  is  some  danger  that  the  agreement 
to  arbitrate  might  not  be  accepted  as  final  by  one  fac- 
tion or  the  other  in  case  the  verdict  is  not  satisfactory, 
and  in  some  states  this  might  lead  eventually  to  litiga- 
tion if  it  is  definitely  established  as  the  law  of  that  state 
that  an  agreement  to  arbitrate  is  not  binding.  However, 
a  carefully  worded  agreement  to  arbitrate,  with  an 
agreement  recited  therein  that  a  judgment  may  be 
entered  based  upon  the  findings  of  the  arbitrators,  fully 
setting  up  the  rights  of  the  parties,  the  methods  of 
procedure  and  other  necessary  details,  is  rarely  ever 
disturbed  by  either  party,  even  though  it  might  not  be 
legally  binding.  It  would  require  a  gross  miscarriage 
of  justice,  or  fraud  upon  the  part  of  the  arbitrators,  to 
render  a  verdict  so  unsatisfactory  as  to  result  in  litigat- 
ing the  same  question,  after  it  had  been  fairly  arbi- 
trated. 

Therefore,  the  collector  or  credit  man,  when  he 
realizes  a  controversy  cannot  be  settled  by  a  heart  to 


COMMERCIAL  ARBITRATION  143 

heart  talk  or  by  the  usual  methods,  should,  when  placing 
the  matter  in  the  hands  of  an  attorney,  recommend 
that  the  attorney  negotiate  an  arbitration  agreement, 
if  possible  and  consistent.  This  suggestion  is  made  for 
the  reason  that  very  few  lawyers  recommend  a  settle- 
ment by  arbitration,  as  their  usual  habits,  procedure 
and  training  is  that  disputes  are  settled  by  the  courts 
and  that  that  is  what  the  courts  are  ordained  for.  But 
much  time,  expense  and  vexation  can  be  saved  by  arbi- 
tration agreements,  when  compared  to  law  suits. 

In  the  February,  1919,  issue  of  the  Official  Bulletin 
of  the  Chicago  Association  of  Credit  Men,  page  20,  the 
following  interesting  reference  is  made  to  Commercial 
Arbitration : 

''The  Chicago  Association  of  Commerce  has  now 
taken  up  the  subject  in  earnest;  has  appointed  a  com- 
mittee of  ten  to  have  general  charge  of  association 
organization  on  commercial  arbitration;  is  appointing 
arbitration  committees  of  three  in  each  of  their  fifty- 
four  trade  subdivisions;  will  assign  a  secretary  at 
Association  headquarters  to  head  up  the  work  there, 
receive  requests  for  and  arrange  for  arbitrations;  a 
sub-committee  is  working  out  compact  and  practical 
rules  for  conducting  arbitrations;  a  publicity  sub- 
committee has  been  appointed;  and  it  is  evident  that 
the  Association  of  Commerce  members  are  not  only  to 
be  fully  informed  of  the  many  advantages  to  be  derived 
from  settling  disputes  out  of   court  by  arbitration, 


144  MERCANTILE   CREDITS  AND   COLLECTIONS 

but  it  is  to  be  made  easy  and  practical  for  them  to 
do  so. 

"Credit  men  should  surely  be  among  the  first  to 
recognize  and  make  use  of  this  modem  procedure.  They 
should  acquaint  their  purchasing  agents  with  the  facil- 
ities now  made  available  by  the  Association  of  Com- 
merce. They  should  seriously  undertake  to  incorporate 
in  their  contracts,  and  in  their  applications  for  credit 
and  in  property  statement  forms,  a  clause  similar  to 
the  following: 

"'Any  dispute  that  may  arise  out  of  the  purchase 
of  goods  under  this  contract,  which  the  parties  in  in- 
terest may  be  unable  to  settle  between  themselves, 
shall  be  referred  to  arbitration  under  the  laws  of  the 
State  of  Illinois  and  the  rules  of  the  Arbitration  Bureau 
of  the  Chicago  Association  of  Commerce.'" 

"  Credit  men  and  purchasing  agents  and  sales  mana- 
gers should  cultivate  the  habit  of  always  considering 
the  possibility  of  settling  a  dispute  by  arbitration,  be- 
fore resorting  to  the  law.  No  rights  are  jeopardized — 
a  judgment  may,  if  deemed  desirable,  be  entered  on  an 
award;  also  an  appeal  may  be  taken.  London  has 
100,000  arbitrations  per  year  and  with  all  its  vast  com- 
merce gets  along  with  comparatively  few  judges,  juries, 
courts  and  civil  cases.  Why  not  Chicago?  The  answer 
lies  with  each  individual  one  of  us." 

The  affairs  of  many  involved  debtors  are  liquidated 
through  adjustment  bureaus  of  the  various  associations 


COMMERCIAL  ARBITRATION  145 

of  credit  men,  and  at  the  New  York  meeting  of  the 
National  Association  of  Credit  Men  held  in  1906  a 
committee  on  adjustment  bureaus  which  had  been 
appointed  a  year  previous,  according  to  the  bulletin 
of  the  National  Association  of  Credit  Men  of  July, 
1906,  outhned  the  fundamental  aims  and  objects  of 
adjustment  bureaus  as  follows: 

(1)  "To  investigate  upon  request  the  affairs  of  a 
debtor  reported  to  be  insolvent  and  adjust  the  estate, 
when  possible,  without  court  proceedings." 

(2)  "To  secure  capable  and  efficient  receivers  and 
appraisers,  or  trustees,  when  court  proceedings  are 
found  to  be  necessary." 

(3)  "To  secure  quick  adjustment  of  all  honest 
failures  at  a  minimum  cost  and  with  a  maximum  divi- 
dend to  creditors." 

(4)  "To  faciUtate  and  economically  secure  exten- 
sions or  Hquidations  when  upon  investigation  it  is 
found  to  be  to  the  best  interests  of  all." 

(5)  "To  influence  concerted  action  by  the  creditors 
for  the  benefit  of  all." 

(6)  "To  assist  creditors  to  acquire  for  their  own  use 
the  estate  of  failing  or  insolvent  debtors,  when  mutu- 
ally agreed  upon." 

(7)  "To  prosecute  or  assist  in  the  prosecution  of  the 
guilty  party  or  parties  where  investigation  discloses 
fraud  or  the  attempt  to  defraud." 

This  statement  of  the  aims  and  objects  of  adjustment 


146  MERCANTILE   CREDITS  AND   COLLECTIONS 

bureaus  is  quite  complete,  and  from  such  statements 
it  will  be  seen  that  adjustment  bureaus  undertake  to 
get  concerted  action  on  the  part  of  creditors  and  to 
prevent  friends  of  the  debtor  from  being  appointed  as 
receivers,  appraisers  or  trustees;  to  prevent  the  dis- 
sipation of  assets  that  usually  occurs  in  bankruptcy 
proceedings;  the  elimination  of  excessive  attorneys' 
fees;  and  the  prosecution  of  fraudulent  debtors — in 
short,  the  adjustment  bureaus  attempt  to  undertake 
to  liquidate  an  estate  just  as  an  estate  is  liquidated  in 
bankruptcy,  but  to  do  so  by  more  competent  adminis- 
tration in  a  more  expeditious  manner  at  a  lower  expense, 
with  the  additional  advantage  of  arranging  an  exten- 
sion to  worthy  and  honest  debtors  who  with  such  an 
extension  can  probably  work  out  their  affairs,  pay  their 
creditors  in  full  and  preserve  their  business. 

It  is  usually  common  practice  now  for  a  member  of 
the  National  Association  of  Credit  Men  to  notify  the 
secretary  of  the  adjustment  bureau  in  his  district  that 
a  certain  debtor  should  be  investigated  and  this  results 
in  calling  a  meeting  of  the  creditors  of  the  person  re- 
ported. A  committee  of  creditors  is  then  appointed, 
usually  with  power  to  act,  and  foreign  creditors  are 
notified.  An  accurate  statement  of  the  financial  con- 
dition of  the  debtor  is  secured  and  an  inventory  of  the 
property.  The  committee  of  creditors  then  has  full 
information  and  can  act  intelligently,  and  if  circum- 
stances warrant,  an  extension  is  granted;  otherwise, 


COMMERCIAL  ARBITRATION  147 

a  trustee  is  placed  in  charge,  the  debtor  is  required  to 
make  an  assignment  for  the  benefit  of  his  creditors, 
and  then,  of  course,  if  he  refuses  to  do  so,  a  bankruptcy- 
petition  is  filed. 

These  adjustment  bureaus  usually  have  skilled  ap- 
praisers and  facilities  for  collecting  accounts,  and 
avenues  through  which  stocks  of  merchandise  can  be 
disposed  of  to  advantage.  Ordinarily  the  charges  of 
the  bureau  to  its  members  do  not  exceed  five  or  six 
per  cent  of  the  amount  distributed  to  creditors,  ex- 
cepting for  unusual  services,  though  some  associations 
charge  a  higher  fee  to  nonmember  creditor^.  These 
adjustment  bureaus  usually  return  to  creditors  from 
55%  to  60%  of  the  amount  of  their  claims,  and  this 
averages  much  higher  than  the  return  in  bankruptcy 
cases,  which  we  believe  can  fairly  be  stated  to  average 
not  more  than  25%. 

If  the  reader  of  this  book  is  a  member  of  the  National 
Association  of  Credit  Men,  he  has  already  learned  from 
experience  the  advantage  of  placing  his  claim  with 
some  adjustment  bureau  of  the  National  Association 
of  Credit  Men,  and  from  that  experience  has  learned 
that  the  affairs  of  insolvent  debtors  are  more  promptly 
and  more  efficiently  managed  than  would  be  the  case 
in  the  average  bankruptcy  administration,  and  the 
returns  he  will  have  are  far  more  satisfactory;  if  the 
reader  is  not  a  member  of  the  National  Association  of 
Credit  Men,  he  is  urged  to  place  claims  against  involved 


148  MERCANTILE   CREDITS   AND   COLLECTIONS 

debtors  with  adjustment  bureaus  anyway  rather  than 
with  attorneys  who  may  undertake  to  throw  the  debtor 
into  bankruptcy. 

Just  when  to  place  an  account  for  collection  with  a 
collection  agency  is  a  question  that  is  often  hard  to 
determine.  If  the  collection  department  waits  too  long 
the  debtor  is  so  involved  that  the  loss  is  proportionately 
greater,  and  if  the  account  is  placed  for  collection  too 
soon  a  collection  agency  will  probably  collect  the  ac- 
count, but  the  debtor  will  get  on  his  feet  and  be  embit- 
tered and  then  the  collection  department  is  charged 
with  driving  away  business  from  the  firm. 

In  Chapter  VI  of  this  book  there  will  be  an  outline 
of  how  you  may  organize  and  conduct  your  own  col- 
lection agency,  with  practically  no  expense,  and  be  in 
full  possession  all  the  time  of  the  status  of  each  claim. 
Practically  the  only  expense  involved  will  be  that  cover- 
ing fees  paid  to  attorneys,  if  a  suit  is  necessary,  and 
court  costs.  The  operation  of  your  own  collection 
agency  is  not  theoretical,  but  by  actual  practice  in  a 
large  business  it  has  proven  to  be  a  distinct  advantage. 

However,  for  the  benefit  of  those  who  do  not  care 
to  operate  their  own  collection  agency,  attention  is 
called  to  public  collection  agencies.  Very  many  col- 
lection agencies  are  inefficient,  and  others  are  not 
trustworthy.  Care  should  be  taken  in  the  selection  of 
your  collection  agency.  Often  business  is  placed  due 
to  personal  friendship  without  regard   to   efficiency, 


COMMERCIAL  ARBITRATION  149 

and  after  relations  are  once  established  claims  keep 
going  to  the  same  collection  concern  without  refer- 
ence to  the  results  accomplished,  relying  entirely 
upon  their  faith  in  that  particular  agency  unless  gross 
errors  or  dishonesty  intervene.  Credit  men  should 
keep  a  record  of  the  cost  of  collecting  accounts  through 
this  medium.  The  sales  department  figures  the  cost 
of  getting  business;  the  management,  the  per  cent  of 
expense;  overhead  is  figured  carefully;  yet  very  few 
concerns  keep  any  record  of  the  percentage  of  cost 
on  the  year's  business  placed  with  the  collection 
agencies. 

If  credit  is  extended  with  a  reasonable  amount  of 
judgment,  and  the  claim  is  placed  at  the  proper  time 
with  the  collection  agency  and  the  collection  agency 
is  efficient  and  honest,  75%  of  the  business  placed  with 
them  should  result  in  full  collection.  The  older  an 
account  becomes  the  harder  it  is  to  collect,  but  if  you 
do  not  wait  too  long  before  placing  business  with  a  col- 
lection agency  many  of  your  doubtful  claims  should 
be  recovered. 

It  is  a  good  plan  to  call  for  the  original  letters  re- 
ceived by  the  collection  agency  from  debtors  once  in 
a  while  to  see  if  they  are  reporting  the  facts  as  they 
exist  and  that  you  are  not  being  misled.  It  is  well 
to  remember,  too,  that  for  the  ordinary  collection  claim 
a  collection  agency  is  better  organized  to  handle  it 
than  attorneys  are.     Attorneys  can  attend  to  legal 


150  MERCANTILE    CREDITS   AND    COLLECTIONS 

procedure,  but  very  few  of  them  are  equipped  to  handle 
detail  collection  work. 

Sometimes  collection  agencies  are  blamed  for  fail- 
ure to  get  results  when  they  are  not  wholly  to  blame, 
due  to  carelessness  on  the  part  of  the  credit  or  collec- 
tion department.  Fundamentally  the  collection  of  an 
account  begins  when  credit  is  first  extended,  for  that 
is  when  the  foundation  is  first  laid  for  collecting  the 
account.  It  is  recommended  that  as  soon  as  it  has  been 
determined  that  an  account  needs  special  attention, 
or  when  excuses  for  non-payment  are  not  satisfactory, 
that  a  further  inquiry  be  made  into  the  debtor's  stand- 
ing at  that  time;  then  when  the  claim  is  placed  with' 
the  collection  agency  they  should  be  given  the  benefit 
of  all  the  information  you  have,  as  this  will  place  them 
in  a  position  to  handle  the  account  intelligently  and  to 
advantage.  Sending  a  plain  statement  showing  the 
balance  due  does  not  give  the  collection  agency  any- 
thing to  work  on,  but  if  you  send  a  full  and  complete 
statement  showing  the  date  of  each  purchase  and  all 
credits,  and  all  correspondence,  and  all  facts  relating 
to  a  dispute,  if  there  is  a  dispute,  the  collection  agency 
has  facts  before  them  which  will  enable  them  to  know 
how  to  deal  with  the  account. 

Referring  again  to  the  time  when  accounts  should  be 
placed  for  collection,  it  should  be  remembered  that  it  is 
not  wise  to  be  hasty  in  seeking  the  aid  of  collection 
agencies  merely  to  get  rid  of  the  burden  of  trying  to 


COMMERCIAL  ARBITRATION  151 

persuade  a  customer  who  is  unable  or  unwilling  to 
pay,  and  yet  too  much  delay  may  involve  loss.  Many 
solvent  debtors  are  merely  indifferent  and  negligent, 
but  if  you  have  used  all  approved  methods,  and  there 
is  a  question  about  the  solvency  of  the  debtor,  you 
should  either  undertake  to  collect  through  your  own 
collection  agency,  as  outlined  in  Part  III,  or  place  the 
account  with  some  public  collection  agency  for  prompt 
attention,  which  can  give  nearly  as  good  service  and  in 
whom  you  have  almost  as  much  confidence  as  you  would 
in  a  collection  agency  operated  by  yourself. 


CHAPTER  V 

BANKRUPTCY 

Every  collector  should  be  familiar  with  the  operation 
of  the  bankruptcy  law, — not  necessarily  with  all  the 
technical  procedure  of  the  bankruptcy  court,  nor  with 
the  legal  problems  involved  in  contested  matters,  but 
he  should  be  especially  interested  in  the  practical  opera- 
tion of  the  law,  its  purposes,  how  it  is  applied  and  some 
of  the  effects  of  its  application. 

The  bankruptcy  law  is  founded  upon  the  equitable 
maxim  that  ''equity  is  equality"  and  upon  the  prin- 
ciple of  expediency  and  the  highest  regard  for  the  great- 
est number.  The  whole  theory  of  the  bankruptcy  law 
is  that  each  creditor  of  the  unfortunate  bankrupt  shall 
share  alike  rather  than  that  some  one  creditor  or  class 
of  creditors  will  have  an  advantage  over  another  cred- 
itor or  class  of  creditors.  Of  course,  the  creditors  of 
the  bankrupt  are  classified  particularly  as  between 
those  who  are  secured  and  those  who  are  unsecured, 
and  it  should  be  the  supreme  effort  of  every  collector 
to  be  in  the  secured  class  if  bankruptcy  intervenes. 

There  has  been  a  great  deal  of  criticism  on  the  part 
of  some  as  to  the  operation  of  the  bankruptcy  law,  but 
it  would  seem  that  much  of  this  criticism  is  due  partly 

152 


BANKRUPTCY  153 

to  the  fact  that  creditors  take  very  little  interest  in  the 
bankrupt's  affairs  after  the  petition  is  filed.  They  all 
seem  to  think  that  matters  will  run  along  themselves, 
and  as  long  as  every  one  is  to  share  and  share  alike  no 
particular  attention  is  paid  to  the  administration  of  the 
estate  by  the  creditors,  and  it  is  to  endeavor  to  cor- 
rect this  mistaken  practice  that  this  chapter  is  largely 
directed. 

In  many  instances  the  effects  of  the  bankruptcy 
court  are  disappointing  and  this  is  felt  more  keenly  by 
the  creditor,  because  after  having  had  his  confidence 
in  the  debtor  shaken  by  reason  of  the  debtor's  failure 
himself,  he  is  doubly  disappointed  in  having  had  his 
confidence  in  the  bankruptcy  court  apparently  mis- 
placed when  judged  by  the  results  in  the  administration 
of  that  particular  estate.  Often  the  creditor  hopes  to 
receive  a  large  dividend  and  expects  complete  redress 
in  the  bankruptcy  court,  and  frequently  having  reason 
to  believe  there  has  been  fraud  practiced  concludes 
that  the  debtor  will  be  sent  to  the  penitentiary.  Very 
often  if  the  debtor  should  be  subjected  to  some  criminal 
penalty  the  very  creditors  who  could  furnish  the  evi- 
dence do  not  show  enough  interest  in  the  case  to  pro- 
duce the  proper  evidence. 

That  there  are  abuses  of  the  bankruptcy  law  there 
can  be  no  question,  but  its  passage  has  certainly  taken 
away  the  fear  of  fraudulent  transfers  and  bills  of  sale 
and  ''midnight  mortgages."    Any  of  these  fraudulent 


154  MERCANTILE    CREDITS   AND    COLLECTIONS 

moves  can  be  set  aside  by  the  operation  of  the  bank- 
ruptcy laws  by  an  involuntary  petition  if  acted  upon 
within  the  time  prescribed.  Since  the  passage  of  the  law 
there  can  be  no  more  pell-mell  attachments,  fraudulent 
conveyances,  preferential  transfers,  favored  receiver- 
ships, assignments,  executions  or  chattel  mortgages 
that  are  designed  to  benefit  some  creditors  at  the  ex- 
pense of  others,  or  to  benefit  the  debtor  at  the  expense 
of  his  creditors  at  large. 

The  bankruptcy  law  is  a  credit  man's  law  and  its 
primary  object  is  the  equal  distribution  of  the  assets 
of  the  bankrupt.  The  law  when  first  enacted,  immedi- 
ately after  the  Civil  War,  was  primarily  to  discharge 
any  honest  and  deserving  citizens  from  a  burden  of 
debt  which  they  could  never  hope  to  overcome  under 
ordinary  conditions,  but  the  law  of  1898,  now  in  force, 
is  built  upon  a  solid  foundation,  and  has  for  its  purpose 
the  advancement  of  commerce  and  the  encouragement 
of  trade  through  reasonable,  honest  venture. 

Occasionally  we  hear  of  the  whole  law  being  con- 
demned because  of  some  individual  case  that  was  im- 
properly handled,  or  through  which  there  disappeared 
much  of  the  assets.  It  seems  to  be  a  trait  of  human 
nature  to  condemn  and  to  affect  a  superior  disdain  for 
subjects  which  are  mysterious  or  shrouded  in  darkness, 
and,  frankly,  it  is  the  author's  belief  that  much  of  the 
opposition  to  the  bankruptcy  law  among  credit  men 
and  lawyers  is  the  general  lack  of  information  as  to 


BANKRUPTCY  155 

the  provisions  of  the  law,  the  procedure  to  be  followed 
and  the  part  that  the  creditor  must  play  in  the  affairs 
of  the  bankrupt  at  certain  times  during  the  adminis- 
tration of  the  estate. 

The  average  case  works  out  about  like  this.  Some 
collection  agency  or  attorney  writes  or  telegraphs  to 
the  firm  a  communication  which  is  referred  to  the  col- 
lection department  or  to  the  credit  man,  stating  that  a 
certain  concern  has  just  filed  a  petition  in  bankruptcy, 
or  that  one  is  just  about  to  be  filed,  either  voluntary  or 
involuntary.  This  letter  usually  intimates  that  the  in- 
formant has  some  first  information  and  that  instant 
action  is  necessary  and  the  impulse  is  to  promptly 
accept  the  invitation  and  send  the  requisite  authority 
to  a  stranger  or  to  one  whose  motives  are  wholly  un- 
known to  the  creditor  and  whose  integrity  or  policy 
of  doing  business  is  likewise  unknown  to  the  creditor. 

There  is  no  reason  in  the  world  why  it  is  necessary 
to  respond  to  these  requests  promptly.  The  collector 
or  credit  man  has  ample  opportunity  to  fully  investi- 
gate the  case,  as  there  is  no  advantage  gained  by  filing 
a  claim  promptly  or  by  delegating  a  power  of  attorney 
to  one  who  has  not  been  investigated,  for  the  reason 
that  it  will  be  at  least  thirty  days  before  even  the  first 
meeting  of  creditors  can  be  held  to  elect  a  trustee.  It 
is  desirable,  of  course,  for  a  creditor  to  file  his  claim  so 
that  he  may  vote  for  a  trustee  and  in  that  way  join 
with  the  other  creditors  in  electing  a  trustee  who  is 


156  MERCANTILE   CREDITS  AND   COLLECTIONS 

competent  to  administer  the  estate,  and  not  some 
attorney  or  other  person  who  will  let  it  administer  it- 
self, knowing  that  his  fees  will  be  practically  the  same 
in  either  case.  Furthermore  a  creditor  has  a  year  after 
the  date  of  bankruptcy  within  which  to  present  his 
claim  for  proof  and  allowance. 

Therefore,  go  a  little  slow  and  when  you  are  solicited 
to  turn  your  claim  over  make  the  same  investigation 
that  you  would  in  case  you  were  extending  credit,  for 
remember  that  most  of  these  solicitations  are  either  for 
the  purpose  of  getting  fees  from  distant  creditors,  or 
some  concern  is  being  hustled  through  bankruptcy 
with  some  trustee  in  control  who  may  represent  in- 
terests that  expect  to  acquire  the  estate,  cheap,  in  toto. 

Many  estates  also  are  not  properly  administered, 
for  the  reason  that  some  creditors  who  do  attend  the 
first  meeting  of  creditors  have  so  little  information  as 
to  bankruptcy  procedure  that  their  vote  is  cast  out. 
The  writer  has  attended  the  first  meetings  of  creditors 
and  has  seen  a  large  number  of  claims  thrown  out  so 
far  as  a  vote  for  the  trustee  is  concerned  because  their 
claim  was  not  in  provable  shape.  At  the  first  meeting 
of  the  creditors  the  referee  calls  for  the  proofs  of  claims 
of  creditors  attending  in  person  or  by  attorney.  This 
call  results  in  the  creditors  stepping  forward,  but  the 
attorneys  are  usually  in  the  foreground  and  present 
bundles  of  claims  which  they  h-ave  solicited  and  in 
proper  order  they  are  examined  by  the  referee  and  are 


BANKRUPTCY  157 

allowed.  The  creditors  usually  timidly  move  up  and 
hand  over  a  statement  of  their  claim,  or  a  copy  of  a 
note,  or  some  other  form  of  claim,  not  presented  in 
provable  shape  and  not  sworn  to,  and  they  are  then 
instructed  by  the  referee  to  procure  proper  blanks,  fill 
out  their  claim  and  swear  to  it.  They  usually  step  into 
another  room  and  while  there  attempt  to  make  out 
their  claim,  but  before  they  can  locate  a  notary  and  get 
the  claim  in  fileable  shape  the  election  of  the  trustee 
is  concluded.  In  that  case  the  trustee  is  generally 
elected  by  the  vote  of  claimants  represented  by  at- 
torneys. 

The  trustee  employs  his  attorney,  and  usually  em- 
ploys the  one  who  has  worked  the  hardest  in  securing 
claims  for  his  election,  so  that  we  can  see  that  frequently 
the  lack  of  knowing  how  to  proceed  in  bankruptcy 
matters  makes  the  bankruptcy  court  more  or  less  of  a 
pohtical  organization  and  makes  it  largely  a  lawyers' 
court  instead  of  a  creditors'  court. 

The  writer  believes  too,  that  it  is  a  great  mistake  to 
elect  some  model  citizen  as  a  trustee,  or  some  man  who 
has  conducted  a  competitive  business,  in  a  belief  that 
if  he  has  made  a  success  of  his  own  business  he  can  con- 
duct the  bankrupt's  estate  in  such  a  way  as  to  make  it 
a  success  and  pay  a  large  dividend,  with  the  ultimate 
possibility  of  paying  out  in  full.  If  the  bankrupt  him- 
self is  honest,  with  his  intimate  knowledge  of  that 
particular  business,  his  personal  pride,  the  asset  of  his 


158  MERCANTILE   CREDITS   AND    COLLECTIONS 

acquaintance,  his  knowledge  of  the  customers  of  the 
business,  their  pecuharities,  credit  standing,  habits 
of  pay, — such  a  bankrupt  himself  is  ordinarily  the  most 
competent  man  of  all  to  operate  that  business  with 
profit.  Yet  he  has  failed.  How  can  the  creditors 
expect  to  elect  a  stranger,  with  a  business  of  his  own 
to  look  after,  who  will  give  the  bankrupt  estate  only  an 
occasional  smattering  of  time,  to  make  a  success  of 
this  business;  he  has  his  own  interests  and  his  own 
troubles,  and  the  result  is  that  due  to  lack  of  attention 
what  few  assets  are  left  are  dissipated;  furthermore, 
it  may  not  be  to  his  advantage  to  successfully  admin- 
ister the  estate  of  a  competitor. 

It  should  be  remembered  that  the  business  of  a  trustee 
is  not  to  operate  a  bankrupt  estate  but  to  liquidate  and 
distribute.  It  is  his  business  to  sell  the  business  or  the 
assets,  whatever  they  may  be,  and  distribute  the  pro- 
ceeds. Therefore,  creditors  should  elect  as  trustee, 
if  possible,  one  who  does  not  have  other  interests  ab- 
sorbing their  time,  one  who  has  not  been  a  competitor 
of  the  bankrupt,  but  one  who  is  tenacious,  energetic 
and  faithful. 

Another  important  phase  of  the  practical  operation 
of  the  bankruptcy  law  with  which  credit  men  and  col- 
lectors should  be  familiar  is  that  dealing  with  prefer- 
ences. Section  3,  subdivision  2,  of  the  Bankruptcy 
Act,  states  that  acts  of  bankruptcy  consist  in  having 
''transferred,  while  insolvent,  any  portion  of  his  prop- 


BANKRUPTCY  159 

erty  to  one  or  more  of  his  creditors  with  intent  to  prefer 
such  creditors  over  his  other  creditors." 

Should  a  bankrupt  commit  an  act  of  bankruptcy  by 
attempting  to  prefer  his  creditors  within  this  definition 
of  a  preference,  proceedings  to  set  aside  such  preference 
must  be  commenced  within  four  months  after  said 
preference  is  created. 

Section  60  of  the  Bankruptcy  Act  deals  with 
preferred  creditors,  and  Subdivision  A  is  as  fol- 
lows: 

''A  person  shall  be  deemed  to  have  given  a  preference 
if,  being  insolvent,  he  has,  within  four  months  before 
the  filing  of  the  petition  or  after  the  filing  of  the  petition 
and  before  the  adjudication,  procured  or  suffered  a  judg- 
ment to  be  entered  against  him  in  favor  of  any  person,  or 
made  a  transfer  of  any  of  his  property,  and  the  effect  of 
the  enforcement  of  such  judgment  or  transfer  will  be  to 
enable  any  one  of  his  creditors  to  obtain  a  greater  per- 
centage of  his  debt  than  any  other  of  such  creditors  of  the 
same  class.  Where  the  preference  consists  in  a  transfer, 
such  period  of  four  months  shall  not  expire  until  four 
months  after  the  date  of  the  recording  or  registering  of 
the  transfer,  if  by  law  such  recording  or  registering  is 
required." 

An  analysis  of  these  two  sections  of  the  Bankruptcy 
Act,  dealing  with  preferences,  will  show  that  Section  3, 
Subdivision  2,  of  the  Bankruptcy  Act,  deals  with  the 
conduct  and  state  of  mind  of  the  bankrupt  before 


160  MERCANTILE   CREDITS  AND   COLLECTIONS 

failure,  but  as  defined  in  Section  60,  preferences  are 
dealt  with  from  the  standpoint  of  the  trustee  after  the 
bankruptcy  petition  has  been  filed;  that  is  to  say,  this 
section  largely  determines  whether  a  trustee  can  re- 
cover from  some  favored  creditor  the  advantage  gained 
by  that  creditor  over  the  other  creditors  of  the  same 
class  in  receiving  some  preference  from  the  bankrupt 
before  the  petition  is  filed  or  after  it  was  filed  and  before 
the  adjudication  took  place. 

In  Mr.  Remington's  text-book  on  the  subject  of 
bankruptcy  he  divides  a  preference  into  eight  elements, 
each  of  which  must  be  proven  by  an  ample  amount  of 
evidence,  and  Mr.  Remington's  classification  is  out- 
lined, and  the  reader  is  directed  to  Mr.  Reming- 
ton's text-book  on  the  subject  of  bankruptcy  for  a 
more  comprehensive  study  on  the  subject  of  bank- 
ruptcy. 

(1)  Money  paid  or  property  conveyed  must  have 
come  from  the  assets  of  the  bankrupt  and  must  have 
depleted  his  estate. 

(2)  Money  paid  or  property  conveyed  must  have 
actually  been  applied  for  the  benefit  of  a  creditor  of  the 
bankrupt. 

(3)  The  preference  received  by  the  bankrupt's  cred- 
itor must  apply  to  a  preceding  debt. 

(4)  The  preference  must  have  been  the  voluntary 
act  of  the  debtor. 

(5)  The   money  paid   or  property   conveyed  must 


BANKRUPTCY  161 

actually  have  been  applied,  in  part  or  in  full,  upon  an 
existing  debt. 

(6)  At  the  time  of  such  payment  or  transfer  the 
debtor  must  have  then  been  insolvent. 

(7)  The  payment  or  transfer  must  have  been  within 
four  months  preceding  the  institution  of  bankruptcy 
proceedings,  and  where  the  preference  occurred  by 
means  of  a  written  document,  and  by  the  law  of  the 
locahty  such  document  is  required  to  be  registered  or 
recorded,  such  registering  or  recording  must  have 
taken  place  within  four  months  prior  to  the  institution 
of  the  bankruptcy  proceedings. 

(8)  An  advantage  must  have  accrued  to  the  creditor 
receiving  the  preference  out  of  the  transaction  as  against 
all  other  general  creditors  of  the  estate. 

In  actual  practice  it  is  very  difficult  indeed  for  a 
trustee  to  recover  for  the  benefit  of  the  general  creditors 
the  preference  given  by  the  bankrupt  to  some  one 
favored  creditor.  Usually  the  evidence  of  the  bank- 
rupt himself  and  the  favored  creditor  is  about  all  that 
is  procurable.  The  bankrupt  in  such  a  case  is  very 
likely  to  feel  that  inasmuch  as  he  favored  this  creditor 
he  may  get  some  favor  in  return  after  his  discharge, 
such  as  obtaining  credit  again  to  get  on  his  feet  after 
he  has  "played  square"  with  this  creditor,  and  the 
creditor  being  anxious  to  maintain  his  preference  is 
not  very  hkely  to  admit  at  the  time  of  its  receipt  that 
he  knew  the  debtor  was  insolvent.    Many  of  the  jury- 


162  MERCANTILE   CREDITS   AND    COLLECTIONS 

men,  too,  in  a  contest  of  this  kind  will  think  that  under 
the  same  circumstances  they  would  do  the  same  thing 
and  that  the  creditor  was  lucky  to  get  his  money,  and 
if  the  other  creditors  were  asleep  on  the  job  it  is  their 
own  fault  and  they  ought  to  suffer. 

There  is  confusion  as  to  when  the  four  months  begin 
to  run  as  to  instruments  that  are  by  law  required  to  be 
registered  or  recorded;  for  instance,  in  some  districts 
it  has  been  held  that  the  four  months'  limitation  in 
Section  60  of  the  Bankruptcy  Act  does  not  begin  until 
the  date  the  instrument  is  recorded;  while  in  other 
sections  it  is  held  that  the  four  months  begins  to  run 
upon  the  execution  and  delivery  of  the  document  ir- 
respective of  when  it  is  recorded. 

The  same  rule  applies  to  transfers  or  encumbrances 
of  personal  property,  but  usually  as  to  personal  prop- 
erty the  four  months'  limitation  does  not  commence 
to  run  until  the  document  is  recorded,  except  in  the 
case  of  conditional  sales  contracts,  in  which  case  the 
four  months  begin  to  run  from  the  time  of  the  execu- 
tion and  delivery  thereof  if  under  the  laws  of  the  state 
where  executed  no  registering  or  recording  is  required; 
and,  on  the  other  hand,  where  the  law  requires  such 
conditional  sales  contracts  to  be  registered  or  recorded, 
the  four  months'  limitation  starts  to  run  at  the  time 
of  the  registering  or  recording.  However,  in  some 
states  it  has  been  decided  that  a  conditional  sales  con- 
tract, if  recorded  at  any  time,  before  the  filing  of  a  peti- 


BANKRUPTCY  163 

tion  in  bankruptcy,  is  good  as  against  all  general  cred- 
itors, and  that  the  filing  of  such  a  contract  does  not 
create  a  preference. 

The  United  States  Bankruptcy  Law  is  set  out  in  this 
volume  complete  inunediately  following  Part  II. 


CHAPTER  VI 

YOUR   OWN   COLLECTION   AGENCY 
ORGANIZATION — COLLECTION    LETTERS — METHODS 

Organizing  and  running  a  collection  agency  of  your 
own  is  not  a  hobby  or  a  pet  theory  but  a  practical 
proposition.  All  that  it  is  necessary  to  do  is  to  adopt 
a  trade  style  or  incorporate  a  company  and  arrange  a 
satisfactory  address  to  which  replies  can  be  sent,  pref- 
erably the  office  of  your  attorneys,  and  get  a  suitable 
letterhead  printed  in  sufficient  quantity,  and  then 
dictate  letters  to  dehnquents  in  your  own  office  and  mail 
the  letters  from  there,  just  as  you  would  in  the  ordinary 
course  of  business. 

The  advantage  of  this  procedure  is  that  you  maintain 
control  of  the  collection  of  your  own  claims;  that  you 
get  better  efficiency,  for  the  reason  that  credit  men  as  a 
rule  are  better  collectors  than  the  average  collection 
agency  clerk,  and  you  get  the  same  benefit  that  a  public 
collection  agency  gets  by  virtue  of  their  name  and  the 
fact  that  they  are  in  the  collection  business  for  the  one 
purpose  of  making  collections.  Furthermore,  the  work 
involved  is  no  greater  than  following  up  a  collection 
agency  for  reports  and  for  money  returns,  as  most 
public  collection  agencies  must  be  periodically  followed, 

1G4 


YOUR  OWN  COLLECTION  AGENCY  165 

and  following  them  up  is  as  much  effort  as  it  is  to  follow 
the  collection  of  a  claim  direct  with  the  debtor. 

The  only  expense  involved  is  the  expense  of  incor- 
porating and  that  is  avoided  if  a  trade  style  is  adopted. 
It  is  recommended,  however,  that  the  business  be  in- 
corporated, as  this  gives  the  collection  agency  a  better 
standing  in  the  eyes  of  the  debtor,  and  enables  you  to 
state  on  your  letterhead  under  what  laws  the  concern 
is  organized,  and  the  stock  can  be  issued  to  dummies 
to  conceal  the  real  identity  of  the  corporation  and  the 
dummies  can  be  required  to  endorse  the  stock  in  blank, 
so  that  the  real  owners  have  actual  control  of  the  busi- 
ness. 

Articles  of  incorporation  vary  in  different  states,  but 
a  letter  to  the  secretary  of  the  state  under  whose  laws 
it  is  determined  to  incorporate,  with  a  request  for 
printed  forms,  will  usually  result  in  getting  the  blanks 
required  for  the  purpose.  However,  several  forms  of 
incorporation  are  shown  herein  for  guidance.  The 
form  in  the  state  of  New  York  is  as  follows : 

CERTIFICATE  OF  INCORPORATION 

OF 

UNIVERSAL  ADJUSTMENT  COMPANY 


We,  the  undersigned,  all  being  of  full  age,  all  of  us  being  citizens 
of  the  United  States,  and  at  least  one  of  us  being  a  resident  of  the 
State  of  New  York,  desiring  to  form  a  corporation  pursuant  to  the 


166  MERCANTILE   CREDITS   AND   COLLECTIONS 

Business  Corporation  Law  of  tlie  State  of  New  York,  do  hereby 
certify,  that 

1.  The  name  of  the  proposed  corporation  is  the  Universal  Ad- 
justment Company. 

2.  The  purposes  for  which  it  is  formed  are  to  buy  and  sell  prom- 
issory notes,  mortgages,  trust  deeds,  open  book  accounts,  condi- 
tional and  other  sales  contracts,  and  other  evidences  of  indebted- 
ness, for  its  own  account  and  not  as  broker,  providing,  however, 
that  it  shall  not  exercise  the  functions  of  a  bank  in  discounting  any 
commercial  paper  and  shall  not  engage  in  the  business  of  loaning 
money,  and  also  to  conduct  a  general  collection  agency  business. 

3.  The  amount  of  the  capital  stock  is  $3,000.00. 

4.  The  capital  stock  shall  be  divided  into  thirty  shares  of  the 
par  value  of  $100.00  each.  The  amount  of  capital  with  which  said 
corporation  shall  begin  business  is  1500.00. 

5.  The  location  of  the  principal  business  office  is  to  be  in  the 
Borough  of  Manhattan,  City  of  New  York,  State  of  New  York. 

6.  The  duration  of  the  corporation  is  to  be  perpetual. 

7.  The  number  of  its  directors  shall  be  three. 

8.  The  names  and  post  office  addresses  of  the  directors  for  the 
first  year  are  as  follows: 


{Name)  {Post  Office  Address) 


9.  The  names  and  post  office  addresses  of  the  subscribers,  and  the 
number  of  shares  of  stock  which  each  agrees  to  take  in  the  corpora- 
tion, are  as  follows: 


{Name)  {Post  Office  Address)     {Number  of  Shares) 


YOUR  OWN   COLLECTION   AGENCY  167 

IN  WITNESS  WHEREOF,  we  have  made  and  signed  this  cer- 
tificate in  duplicate  tliis day  of ,  19. . . 

In  presence  of: 


State  of  New  York     ] 

r    SS. 

County  of  New  York  j 

On  this day  of ,  19 . . ,  before  me 

personally  came , , , 

to  me  personally  known  and  known  to  me  to  be  the  individuals 
described  in  and  who  executed  the  foregoing  instrument,  and  sever- 
ally acknowledged  that  they  executed  the  same  for  the  uses  and  pur- 
poses therein  mentioned. 


{Notary  Public) 

The  following  form  is  the  form  for  the  State  of  Indiana: 

ARTICLES  OF  ASSOCIATION 

OF 

UNIVERSAL  ADJUSTMENT  COMPANY 


We,  the  undersigned,  hereby  associate  ourselves  together,  pur- 
suant to  the  statutes  of  the  State  of  Indiana,  for  the  organization 
of  corporations,  by  the  following  ^Titten  articles: 

1.  Name.  The  name  shall  be  the  Universal  Adjustment  Com- 
pany. 

2.  Object.  The  object  of  this  Association  and  the  proposed  plan 
for  the  transaction  of  its  business  shall  be  to  buy  and  sell  promis- 


168  MERCANTILE    CREDITS   AND   COLLECTIONS 

sory  notes,  mortgages,  trust  deeds  and  open  book  accounts,  condi- 
tional and  other  sales  contracts,  and  other  evidences  of  indebtedness, 
for  its  own  account  and  not  as  broker,  providing,  however,  that  it 
shall  not  exercise  the  functions  of  a  bank  in  discounting  any  com- 
merical  paper  and  shall  not  engage  in  the  business  of  loaning  money, 
and  also  to  conduct  a  general  collection  agency  business. 

3.  The  capital  stock  of  this  Association  shall  be  S3,000.00, 
divided  into  thirty  shares  of  $100.00  each. 

4.  Term  of  existence.  The  Association  shall  have  an  existence 
of  twenty  (not  to  exceed  fifty)  years  from  the  date  hereof. 

5.  Board  of  directors.  There  shall  be  three  directors  for  this 
corporation,  who  after  the  first  of  the  year  shall  be  elected  annually 
by  the  stockholders.  All  the  corporate  officers  shall  be  appointed 
by  the  directors. 

6.  Place  of  operations.  The  business  of  this  corporation  shall 
be  carried  on  in  Indianapolis. 

7.  Directors  for  first  year.  The  following  directors  shall  man- 
age the  affairs  and  prudential  concerns  of  this  corporation  for  the 
first  year  of  its  existence. 


IN  WITNESS  WHEREOF,  we  have  hereunto  set  our  hands 

this day  of , 

19... 

(Note:  The  subscribers  affix,  in  addition  to  their  names,  their 
residence,  and,  if  a  stock  corporation,  the  number  of  shares  taken 
by  each.) 

It  is  advisable  to  select  a  suitable  name,  such  as  The 
National  Discount  Company,  The  National  Collec- 
tion Company,  The  Universal  Adjustment  Company, 


YOUR  OWN   COLLECTION   AGENCY  169 

or  something  similar.  Although  a  post  office  box  can 
be  rented  and  used  as  the  official  address  of  the  com- 
pany, the  better  plan  is  to  use  the  address  of  your  at- 
torneys, with  their  consent,  as  the  official  address  of  the 
company.  Your  attorneys  will  not  object  to  this  ar- 
rangement, and  will  arrange  to  daily  re-forward  or 
deliver  to  you  all  the  mail  received  by  them  addressed 
to  the  collection  agency. 

The  advantage  of  using  the  address  of  the  attorneys 
is  that  if  any  debtor  should  call  with  the  idea  of  making 
a  personal  visit  to  settle  a  claim,  he  will  not  find  any 
connection  between  the  concern  to  whom  he  is  indebted 
and  the  collection  agency. 

If  there  are  laws  in  the  state  requiring  a  collection 
agency  to  furnish  a  bond,  or  otherwise  restrict  them 
in  any  way  that  is  unreasonable  or  undesirable,  the 
claim  can  actually  be  sold  to  the  collection  agency  by  an 
assignment  of  the  account,  endorsement  of  a  note,  or  a 
transfer  of  the  obligation  in  any  other  form,  so  that 
they  will  appear  as  the  actual  bona  fide  holders  of  the 
claim. 

It  has  been  found  advantageous  to  state  on  the 
letterhead  that  the  company  deals  in  stocks,  bonds, 
mortgages,  securities,  and  does  a  general  collection 
business.  If  some  debtor  does  call  on  your  attorneys 
and  desires  to  make  settlement,  he  can  then  call  for 
your  file  of  papers  and  make  some  settlement,  and  you 
can  pay  him  a  reasonable  fee  for  his  services. 


170  MERCANTILE   CREDITS  AND   COLLECTIONS 

Should  it  be  desired  to  avoid  the  expense  of  organiz- 
ing a  corporation,  the  adoption  of  a  trade  name  will 
accomplish  the  same  purpose,  though  there  is  more 
danger  of  having  the  relationship  between  the  firm  and 
the  collection  agency  revealed,  either  through  the  filing 
of  the  articles  of  adoption  of  trade  name  or  in  some  other 
way.  However,  as  the  fee  for  organizing  corporations 
is  usually  a  very  nominal  sum,  that  is  by  far  the  better 
plan  of  conducting  your  own  collection  agency. 

In  writing  a  debtor  you  have  the  advantage  of  know- 
ing all  about  the  past  history  of  his  relations  with  the 
firm  and  can  better  judge  how  he  shall  be  approached 
than  some  public  collection  agency  could  who  had  no 
experience  with  him.  At  the  same  time  collection 
agency  letters  can  be  very  much  more  drastic  than  the 
letters  which  were  previouly  sent  to  this  debtor  under 
the  firm  name.  The  average  public  collection  agency 
has  a  printed  form  which  they  send  out  notifying  the 
debtor  that  they  have  a  claim  for  collection  and  de- 
manding immediate  attention.  Some  of  them  in  their 
printed  notice  threaten  suit  within  a  certain  number 
of  days.  Operating  your  own  collection  agency  gives 
you  the  same  advantage  that  any  other  collection  agency 
would  have  against  the  debtor,  and  gives  you  the  ad- 
ditional advantage  of  knowing  the  customer  and  better 
determining  from  that  how  to  proceed  to  enforce  col- 
lection and  enables  you  to  maintain  a  direct  control 
over  such  claims  at  the  same  time. 


YOUR  OWN   COLLECTION  AGENCY  171 

It  is  assumed  that  when  a  claim  gets  into  the  hands 
of  some  agency  for  collection  there  is  no  thought  of  at- 
tempting to  retain  the  good  will  of  the  customer,  and 
thus  you  may  go  the  hmit  in  making  any  kind  of  demand 
or  threat  that  will  most  likely  result  in  collection. 
However,  if  the  nature  of  the  debtor  indicates  that  the 
use  of  suggestions  may  be  adopted  or  persuasive  methods 
pursued,  that  procedure  may  be  followed,  but  ordinarily 
these  tactics  have  already  been  tried  out  and  it  is 
questionable  if  they  would  be  successful  even  though 
the  added  force  of  a  collection  agency  is  possible. 

If  the  debtor  actually  fears  a  suit,  he  may  accept  a 
suggestion  to  pay  the  obHgation  in  installments.  If  the 
debtor  is  known  to  have  a  certain  amount  of  pride,  or 
fears  pubhcity,  threatening  to  advertise  the  obligation 
for  sale  is  sometimes  effective.  The  notice  of  sale  may 
be  placed  in  the  debtor's  home  newspaper,  or  a  small 
printed  poster  be  placed  in  front  of  his  office  or  in  front 
of  his  residence.  If  you  know  where  he  banks,  he  is 
frequently  stirred  up  if  the  collection  agency  write  to 
his  bank  offering  to  sell  the  claim  to  the  bank  at  a 
discount,  sending  him  a  carbon  copy  of  the  letter.  He 
will  not  know  to  what  extreme  you  will  go  when  he  sees 
these  methods  being  pursued,  and  if  there  is  any  way 
for  him  to  get  the  money  he  will  pay  the  claim,  rather 
than  be  further  harassed.  Some  debtors  are  aroused 
to  action  by  sending  a  dun  in  a  mourning  envelope. 

If  all  efforts  to  collect  by  mail  have  failed,  the  claim 


172  MERCANTILE   CREDITS   AND   COLLECTIONS 

should,  of  course,  be  placed  in  the  hands  of  an  attorney 
through  your  own  collection  agency.  It  is  desirable 
to  use  a  first-class  attorney,  whose  name  should  be  taken 
from  some  list  of  recommended  attorneys,  and  if  the 
credit  man  has  a  general  knowledge  of  law,  and  a  fair 
knowledge  of  the  debtor's  affairs,  he  can  frequently 
make  suggestions  to  attorneys  as  to  how  to  proceed  to 
collect;  that  is  to  say,  he  will  know  whether  to  threaten 
suit  or  actually  commence  suit,  whether  to  attach  cer- 
tain property  or  whether  the  debtor  should  be  threatened 
with  a  bankruptcy  proceeding.  In  states  where  the 
law  permits  a  judgment  debtor  to  be  examined,  the 
attorney  should  be  instructed  to  cite  him  for  an  ex- 
amination under  supplementary  proceedings. 

Where  business  is  sent  to  lawyers  by  mail,  the  usual 
rule  is  for  the  attorney  to  retain  two-thirds  of  the  fee 
and  send  the  correspondent  (in  this  case  your  own  col- 
lection agency)  one-third  of  the  fee,  and  if  you  will  get 
your  notes  in  such  shape  that  attorney's  fees  are  in- 
cluded your  agency  will  not  only  operate  at  a  sufficient 
profit  to  cover  all  the  expenses  of  stationary,  stamps, 
etc.,  but  there  may  be  some  surplus  to  apply  on  your 
losses  and  bad  accounts. 


PART  III 
UNITED  STATES  BANKRUPTCY  LAW 


UNITED  STATES  BANKRUPTCY  LAW 

COMPLETE 
INCLUDING  AMENDMENTS  OF  1910 

An  Act  to  Create  a  Uniform  System  of  Bankruptcy  in 
the  United  States  and  Territories 

CHAPTER  I 

Definitions 

1.  Meaning  of  Words  and  Phrases. 

CHAPTER  II 

Creation  of  Courts  of  Bankruptcy  and  their  Jurisdiction 

2.  Courts  and  Jurisdiction. 

CHAPTER  III 

Bankrupts 

3.  Acts  of  Bankruptcy. 

4.  Who  may  become  Bankrupts. 

5.  Partners. 

6.  Exemption  of  Bankrupts. 

7.  Duties  of  Bankrupts. 

8.  Death  or  Insanity  of  Bankrupts. 

9.  Protection  and  Detention  of  Bankrupts. 

10.  Extradition  of  Bankrupts. 

11.  Suits  by  and  against  Bankrupts. 

12.  Compositions,  when  Confirmed. 

13.  Compositions,  when  Set  Aside. 

14.  Discharges,  when  Granted. 

15.  Discharges,  when  Revoked. 

175 


176  MERCANTILE   CREDITS  AND   COLLECTIONS 

16.  Co-debtors  of  Bankrupts. 

17.  Debts  not  Affected  by  Discharge. 

CHAPTER  IV 

Courts  and  Procedure  Therein 

18.  Process,  Pleadings,  and  Adjudications. 

19.  Jury  Trials. 

20.  Oaths,  Affirmations. 

21.  Evidence. 

22.  Reference  of  Cases  after  Adjudication. 

23.  Jurisdiction  of  United  States  and  State  Courts. 

24.  Jurisdiction  of  Appellate  Courts. 

25.  Appeals  and  Writs  of  Error. 

26.  Arbitration  of  Controversies. 

27.  Compromises. 

28.  Designation  of  Newspapers. 

29.  Offenses. 

30.  Rules,  Forms,  and  Orders. 

31.  Computation  of  Time. 

32.  Transfer  of  Cases. 

CHAPTER  V 

Officers,  their  Duties  and  Compensation 

33.  Creation  of  Two  Offices. 

34.  Appointment,  Removal  and  Districts  of  Referees. 

35.  Qualifications  of  Referees. 

36.  Oath  of  Office  of  Referees. 

37.  Number  of  Referees. 

38.  Jurisdiction  of  Referees. 

39.  Duties  of  Referees. 

40.  Compensation  of  Referees. 

41.  Contempts  before  Referees. 

42.  Records  of  Referees. 

43.  Referee's  Absence  or  Disability. 

44.  Appointment  of  Trustees. 

45.  Qualifications  of  Trustees. 


UNITED   STATES    BANKRUPTCY  LAW  177 

43.  Death  or  Removal  of  Trustees. 

47.  Duties  of  Trustees. 

48.  Compensation  of  Trustees. 

49.  Accounts  and  Papers  of  Trustees. 

50.  Bonds  of  Referees  and  Trustees. 

51.  Duties  of  Clerks. 

52.  Compensation  of  Clerks  and  Marshals. 

53.  Duties  of  Attorney  General. 

54.  Statistics  of  Bankruptcy  Proceedings. 

CHAPTER  VI 

Creditors 

55.  Meetings  of  Creditors. 

56.  Voters  at  Meetings  of  Creditors. 

57.  Proof  and  Allowance  of  Claim. 

58.  Notice  to  Creditors. 

59.  Who  may  File  and  Dismiss  Petitions. 

60.  Preferred  Creditors. 

CHAPTER  VII 

Estates 

61.  Depositories  for  Money. 

62.  Expenses  of  Administering  Estates. 

63.  Debts  which  may  be  Proved. 

64.  Debts  which  have  Priority. 

65.  Declarations  and  Payments  of  Dividends. 

66.  Unclaimed  Dividends. 

67.  Liens. 

68.  Set-offs  and  Counterclaims. 

69.  Possession  of  Property. 

70.  Title  to  Property. 

71.  Clerks  to  Keep  Indexes. 

72.  Extra  Fees  Forbidden. 


CHAPTER  I 

DEFINITIONS 

Meaning  of  Words  and  Phrases: 

Section  1. — a.  The  words  and  phrases  used  in  this 
act  and  in  proceedings  pursuant  hereto  shall,  unless 
the  same  be  inconsistent  with  the  context,  be  con- 
strued as  follows:  (1)  "A  person  against  whom  a  pe- 
tition has  been  filed"  shall  include  a  person  who  has 
filed  a  voluntary  petition;  (2)  ''adjudication"  shall  mean 
the  date  of  the  entry  of  a  decree  that  the  defendant  in  a 
bankruptcy  proceeding  is  a  bankrupt,  or  if  such  decree 
is  appealed  from,  then  the  date  when  such  decree  is 
finally  confirmed;  (3)  "Appellate  Courts"  shall  include 
the  Circuit  Courts  of  Appeals  of  the  United  States,  the 
Supreme  Courts  of  the  Territories,  and  the  Supreme 
Court  of  the  United  States;  (4)  "bankrupt"  shall  in- 
clude a  person  against  whom  an  involuntary  petition 
or  an  application  to  set  a  composition  aside  or  to  re- 
voke a  discharge  has  been  filed  or  who  has  filed  a  vol- 
untary petition  or  who  has  been  adjudged  a  bankrupt; 

(5)  "clerk"  shall  mean  the  clerk  of  a  court  of  bankruptcy; 

(6)  "corporations"  shall  mean  all  bodies  having  any  of 
the  powers  and  privileges  of  private  corporations  not  pos- 
sessed by  individuals  or  partnerships,  and  shall  include 

179 


180  MERCANTILE   CREDITS  AND   COLLECTIONS 

limited  or  other  partnership  associations  organized  under 
laws  making  the  capital  subscribed  alone  responsible  for 
the  debts  of  the  association;  (7)  ''court"  shall  mean 
the  court  of  bankruptcy  in  which  the  proceedings  are 
pending,  and  may  include  the  referee;  (8)  "courts  of 
bankruptcy"  shall  include  the  district  courts  of  the 
United  States  and  of  the  Territories,  the  Supreme  Court 
of  the  District  of  Columbia,  and  the  United  States 
Court  of  Alaska;  (9)  "creditor"  shall  include  any  one 
who  owns  a  demand  or  claim  provable  in  bankruptcy, 
and  may  include  his  duly  authorized  agent,  attorney  or 
proxy;  (10)  "date  of  bankruptcy"  or  "time  of  bank- 
ruptcy, "  or  "  commencement  of  proceedings  " ,  or  "  bank- 
ruptcy" with  reference  to  time,  shall  mean  the  date 
when  the  petition  was  filed;  (11)  "debt"  shall  include 
any  debt,  demand  or  claim  provable  in  bankruptcy; 
(12)  "discharge"  shall  mean  the  release  of  a  bank- 
rupt from  all  of  his  debts  which  are  provable  in  bank- 
ruptcy, except  such  as  are  excepted  by  this  act;  (13) 
"document"  shall  include  any  book,  deed  or  instrument 
in  writing;  (14)  "holiday"  shall  include  Christmas, 
the  Fourth  of  July,  the  Twenty-second  of  February 
and  any  day  appointed  by  the  President  of  the  United 
States  or  the  Congress  of  the  United  States  as  a  hohday 
or  as  a  day  of  public  fasting  or  thanksgiving;  (15)  a 
person  shall  be  deemed  insolvent  within  the  provisions 
of  this  act  whenever  the  aggregate  of  his  property,  ex- 
clusive of  any  property  which  he  may  have  conveyed, 


DEFINITIONS  181 

transferred,  concealed  or  removed,  with  intent  to  de- 
fraud, hinder  or  delay  his  creditors,  shall  not  at  a  fair 
valuation  be  sufficient  in  amount  to  pay  his  debts; 
(16)  "judge"  shall  mean  a  judge  of  a  court  of  bank- 
ruptcy, not  including  the  referee;  (17)  *^oath"  shall 
include  affirmation;  (18)  "officer"  shall  include  clerk, 
marshal,  receiver,  referee  and  trustee,  and  the  impos- 
ing of  a  duty  upon  or  the  forbidding  of  an  act  by  any 
officer  shall  include  his  successor  and  any  person  au- 
thorized by  law  to  perform  the  duties  of  such  officer; 
(19)  "persons"  shall  include  corporations,  except  where 
otherwise  specified,  and  officers,  partnerships,  and 
women,  when  used  with  reference  to  the  commission 
of  acts  which  are  herein  forbidden,  shall  include  persons 
who  are  participants  in  the  forbidden  acts,  and  the 
agents,  officers,  and  members  of  the  board  of  directors 
or  trustees,  or  other  similar  controlling  bodies  of  cor- 
porations; (20)  "petition"  shall  mean  a  paper  filed  in 
a  court  of  bankruptcy  or  with  a  clerk  or  deputy  clerk  by 
a  debtor  praying  for  the  benfits  of  this  act,  or  by  creditors 
alleging  the  commission  of  an  act  of  bankruptcy,  by  a 
debtor  therein  named;  (21)  "referee"  shall  mean  the 
referee  who  has  jurisdiction  of  the  case  or  to  whom  the 
case  has  been  referred,  or  any  one  acting  in  his  stead, 
(22)  "conceal"  shall  include  secrete,  falsify  and  mutil- 
ate; (23)  "secured  creditor"  shall  include  a  creditor 
who  has  security  for  his  debt  upon  the  property  of  the 
bankrupt  of  a  nature  to  be  assignable  under  this  act,  or 


182  MERCANTILE   CREDITS  AND   COLLECTIONS 

who  owns  such  a  debt  for  which  some  indorser,  surety, 
or  other  persons  secondarily  liable  for  the  bankrupt  has 
such  security  upon  the  bankrupt's  assets;  (24)  ''States" 
shall  include  the  Territories,  Alaska,  and  the  District 
of  Columbia;  (25)  ''transfer"  shall  include  the  sale  and 
every  other  and  different  mode  of  disposing  of  or  part- 
ing with  property,  or  the  possession  of  property  abso- 
lutely or  conditionally,  as  a  payment,  pledge,  mortgage, 
gift  or  security;  (26)  "trustee"  shall  include  all  of  the 
trustees  of  an  estate;  (27)  "wage-earner"  shall  mean 
an  individual  who  works  for  wages,  salary,  or  hire,  at  a 
rate  of  compensation  not  exceeding  one  thousand  five 
hundred  dollars  per  year;  (28)  words  importing  the 
mascuUne  gender  may  be  applied  to  and  include  cor- 
porations, partnerships,  and  women;  (29)  words  im- 
porting the  plural  number  may  be  applied  to  and  mean 
only  a  single  person  or  thing;  (30)  words  importing  the 
singular  number  may  be  applied  to  and  mean  several 
persons  or  things. 


CHAPTER  II 

CREATION   OF   COURTS   OF   BANKRUPTCY   AND   THEIR 
JURISDICTION 

Courts  and  Jurisdiction: 

Sec.  2.  That  the  courts  of  bankruptcy  as  hereinbe- 
fore defined,  viz.:  the  district  courts  of  the  United 
States  in  the  several  States,  the  Supreme  Court  of  the 
District  of  Columbia,  the  district  courts  of  the  several 
Territories,  and  the  United  States  courts  in  the  District 
of  Alaska,  are  hereby  made  courts  of  bankruptcy,  and 
are  hereby  invested,  within  their  respective  territorial 
limits  as  now  established,  or  as  they  may  be  hereafter 
changed,  with  such  jurisdiction  at  law  and  in  equity  as 
will  enable  them  to  exercise  original  jurisdiction  in 
bankruptcy  proceedings,  in  vacation  in  chambers  and 
during  their  respective  terms,  as  they  are  now  or  may 
be  hereafter  held,  to  (1)  adjudge  persons  bankrupt 
who  have  had  their  principal  place  of  business,  resided, 
or  had  their  domicile  within  their  respective  terri- 
torial jurisdictions  for  the  preceding  six  months,  or  the 
greater  portion  thereof,  or  who  do  not  have  their  prin- 
cipal place  of  business,  reside,  or  have  their  domicile 
within  the  United  States,  but  have  property  within 
their  jurisdiction,  or  who  have  been  adjudged  bank- 

183 


184  MERCANTILE   CREDITS   AND    COLLECTIONS 

rupts  by  courts  of  competent  jurisdiction  without  the 
United  States,  and  have  property  within  their  jurisdic- 
tion; (2)  allow  claims,  disallow  claims,  reconsider  al- 
lowed or  disallowed  claims,  and  allow  or  disallow  them 
against  bankrupt  estates;  (3)  appoint  receivers  or  the 
marshal  upon  application  of  parties  in  interest  in  case 
the  court  shall  find  it  absolutely  necessary,  for  the 
preservation  of  estates,  to  take  charge  of  the  property 
of  bankrupts  after  the  filing  of  the  petition  and  until 
it  is  dismissed  or  the  trustee  is  qualified;  (4)  arraign, 
try,  and  punish  bankrupts,  officers,  and  other  persons, 
and  the  agents,  officers,  members  of  the  board  of 
directors  or  other  similar  controlling  bodies  of  corpora- 
tions for  violation  of  this  act,  in  accordance  with  the 
laws  of  procedure  of  the  United  States  now  in  force, 
or  such  as  may  be  hereafter  enacted,  regulating  trials 
for  the  alleged  violation  of  laws  of  the  United  States; 
(5)  authorize  the  business  of  bankrupts  to  be  conducted 
for  limited  periods  by  receivers,  the  marshals,  or  trus- 
tees, if  necessary  in  the  best  interests  of  the  estates, 
and  allow  such  officers  additional  compensation  for 
such  services,  as  provided  in  section  forty-eight  of  this 
act;  (G)  bring  in  and  substitute  additional  persons  or 
parties  in  proceedings  of  bankruptcy  when  necessary 
for  the  complete  determination  of  a  matter  in  contro- 
versy; (7)  cause  the  estates  of  bankrupts  to  be  collected, 
reduced  to  money  and  distributed  and  detennine  con- 
troversies in  relation  thereto,  except  as  herein  otherwise 


CREATION  OF  COURTS   OF  BANKRUPTCY  185 

provided;  (8)  close  estates  whenever  it  appears  that 
they  have  been  fully  administered,  by  approving  the 
final  accounts  and  discharging  the  trustees,  and  reopen 
them  whenever  it  appears  they  were  closed  before 
being  fully  administered;  (9)  confirm  or  reject  composi- 
tions between  debtors  and  their  creditors,  and  set  aside 
compositions  and  reinstate  the  cases;  (10)  consider 
and  confirm,  modify  or  overrule,  or  return,  with  in- 
structions for  further  proceedings,  records  and  findings 
certified  to  them  by  referees;  (11)  determine  all  claims 
of  bankrupts  to  their  exemptions;  (12)  discharge  or 
refuse  to  discharge  bankrupts  and  set  aside  discharge 
and  reinstate  the  cases;  (13)  enforce  obedience  by  bank- 
rupts, officers,  and  other  persons  to  all  lawful  orders,  by 
fine  or  imprisonment  or  fine  and  imprisonment;  (14) 
extradite  bankrupts  from  their  respective  districts 
to  other  districts;  (15)  make  such  orders,  issue  such 
process,  and  enter  such  judgments  in  addition  to  those 
specifically  provided  for  as  may  be  necessary  for  the 
enforcement  of  the  provisions  of  this  Act;  (16)  punish 
persons  for  contempts  committed  before  referees;  (17) 
pursuant  to  the  recommendation  of  creditors,  or  when 
they  neglect  to  recommend  the  appointment  of  trustees, 
appoint  trustees,  and  upon  complaints  of  creditors, 
remove  trustees  for  cause  upon  hearings  and  after 
notices  to  them;  (18)  tax  costs,  whenever  they  are  al- 
lowed by  law,  and  render  judgments  therefor  against 
the  unsuccessful  party,  or  the  successful  party  for  cause, 


186  MEKCANTILE   CREDITS  AND   COLLECTIONS 

or  in  part  against  each  of  the  parties,  and  against 
estates,  in  proceedings  in  bankruptcy;  and  (19)  transfer 
cases  to  other  courts  of  bankruptcy,  and  (20)  exercise 
ancillary  jurisdiction  over  persons  or  property  within 
their  respective  territorial  limits  in  aid  of  a  receiver 
or  trustee  appointed  in  any  bankruptcy  proceedings 
pending  in  any  other  court  of  bankruptcy. 

Nothing  in  this  section  contained  shall  be  construed 
to  deprive  a  court  of  bankruptcy  of  any  power  it  would 
possess  were  certain  specific  powers  not  herein  enumer- 
ated. 


CHAPTER  III 

BANKRUPTS 

Acts  of  Bankruptcy : 

Sec.  3. — a.  Acts  of  bankruptcy  by  a  person  shall 
consist  of  his  having  (1)  conveyed,  transferred,  con- 
cealed, or  removed,  or  permitted  to  be  concealed  or 
removed,  any  part  of  his  property  with  intent  to  hinder, 
delay,  or  defraud  his  creditors,  or  any  of  them;  or  (2) 
transferred,  while  insolvent,  any  portion  of  his  prop- 
erty to  one  or  more  of  his  creditors  with  intent  to  prefer 
such  creditors  over  his  other  creditors;  or  (3)  suffered 
or  permitted,  while  insolvent,  any  creditor  to  obtain 
a  preference  through  legal  proceedings,  and  not  having 
at  least  five  days  before  a  sale  or  final  disposition  of 
any  property  affected  by  such  preference  vacated  or 
discharged  such  preference;  or  (4)  made  a  general 
assignment  for  the  benefit  of  his  creditors  or,  being  in- 
solvent, apphed  for  a  receiver  or  trustee  for  his  property 
or  because  of  insolvency  a  receiver  or  trustee  has  been 
put  in  charge  of  his  property  under  the  laws  of  a  State, 
of  a  Territory,  or  of  the  United  States;  or  (5)  admitted 
in  writing  his  inability  to  pay  his  debts  and  his  willing- 
ness to  be  adjudged  a  bankrupt  on  that  ground. 

b.  A  petition  may  be  filed  against  a  person  who  is  in- 

187 


188  MERCANTILE    CREDITS   AND    COLLECTIONS 

solvent  and  who  has  committed  an  act  of  bankruptcy 
within  four  months  after  the  omission  of  such  act. 
Such  time  shall  not  expire  until  four  months  after  (1) 
the  date  of  the  recording  or  registering  of  the  transfer 
or  assignment  when  the  act  consists  in  having  made  a 
transfer  of  any  of  his  property  with  intent  to  hinder, 
delay,  or  defraud  his  creditors  or  for  the  purpose  of 
giving  a  preference  as  hereinbefore  provided,  or  a  general 
assignment  for  the  benefit  of  his  creditors,  if  by  law 
such  recording  or  registering  is  required  or  permitted,  or, 
if  it  is  not,  from  the  date  when  the  beneficiary 
takes  notorious,  exclusive,  or  continuous  possession 
of  the  property  unless  the  petitioning  creditors 
have  received  actual  notice  of  such  transfer  or  as- 
signment. 

c.  It  shall  be  a  complete  defense  to  any  proceedings 
in  bankruptcy  instituted  under  the  first  subdivision 
of  this  section  to  allege  and  prove  that  the  party  pro- 
ceeded against  was  not  insolvent  as  defined  in  this  Act 
at  the  time  of  the  filing  the  petition  against  him,  and  if 
solvency  at  such  date  is  proved  by  the  alleged  bankrupt 
the  proceedings  shall  be  dismissed,  and  under  the  said 
subdivision  one  the  burden  of  proving  solvency  shall 
be  on  the  alleged  bankrupt. 

d.  Whenever  a  person  against  whom  a  petition  has 
been  filed  as  herein  provided  under  the  second  and  third 
subdivisions  of  this  section  takes  issue  with  and  denies 
the  allegation  of  his  insolvency,  it  shall  be  his  duty  to 


BANKRUPTS  189 

appear  in  court  on  the  hearing,  with  his  books,  papers, 
and  accounts,  and  submit  to  an  examination,  and  give 
testimony  as  to  all  matters  tending  to  establish  sol- 
vency or  insolvency,  and  in  case  of  his  failure  to  so  at- 
tend and  submit  to  examination  the  burden  of  proving 
his  solvency  shall  rest  upon  him, 

e.  Whenever  a  petition  is  filed  by  any  person  for  the 
purpose  of  having  another  adjudged  a  bankrupt, 
and  an  application  is  made  to  take  charge  of  and  hold 
the  property  of  the  alleged  bankrupt,  or  any  part  of 
the  same,  prior  to  the  adjudication  and  pending  a  hear- 
ing on  the  petition,  the  petitioner  or  applicant  shall 
file  in  the  same  court  a  bond  with  at  least  two  good 
and  sufficient  sureties  who  shall  reside  w^ithin  the  juris- 
diction of  said  court,  to  be  approved  by  the  court  or  a 
judge  thereof,  in  such  sum  as  the  court  shall  direct, 
conditional  for  the  payment,  in  case  such  petition  is  dis- 
missed, to  the  respondent,  his  or  her  personal  represen- 
tatives, all  costs,  expenses  and  damages  occasioned  by 
such  seizure,  taking,  and  detention  of  the  property  of 
the  alleged  bankrupt. 

If  such  petition  be  dismissed  by  the  court  or  with- 
drawn by  the  petitioner,  the  respondent,  or  respondents, 
shall  be  allowed  all  costs,  counsel  fees,  expenses  and 
damages  occasioned  by  such  seizure,  taking  or  deten- 
tion of  such  property.  Counsel  fees,  costs,  expenses, 
and  damages  shall  be  fixed  and  allowed  by  the  court, 
and  paid  by  the  obligors  in  such  bond. 


190  MERCANTILE    CREDITS   AND    COLLECTIONS 

Who  may  become  Bankrupts  : 

Sec.  4. — a.  Any  person  except  a  municipal,  railroad, 
insurance,  or  banking  corporation,  shall  be  entitled  to 
the  benefits  of  this  act  as  a  voluntary  bankrupt. 

b.  Any  natural  person,  except  a  wage-earner,  or  a 
person  engaged  chiefly  in  farming  or  the  tillage  of  the 
soil,  any  unincorporated  company,  and  any  moneyed, 
business,  or  commercial  corporation,  except  a  municipal, 
railroad,  insurance  or  banking  corporation,  owing  debts 
to  the  amount  of  one  thousand  dollars  or  over,  may  be 
adjudged  an  involuntary  bankrupt  upon  default  or  an 
impartial  trial,  and  shall  be  subject  to  the  provisions 
and  entitled  to  the  benefits  of  this  act. 

The  bankruptcy  of  a  corporation  shall  not  release 
its  officers,  directors,  or  stockholders,  as  such,  from 
any  liability  under  the  laws  of  a  State  or  Territory 
or  of  the  United  States. 

Partners : 

Sec.  5. — a.  A  partnership,  during  the  continuation 
of  the  partnership  business,  or  after  its  dissolution  and 
before  the  final  settlement  thereof,  may  be  adjudged  a 
bankrupt. 

b.  The  creditors  of  the  partnership  shall  appoint  the 
trustee;  in  other  respects  so  far  as  possible  the  estate 
shall  be  administered  as  herein  provided  for  other  es- 
tates. 

c.  The  court  of  bankruptcy  which  has  jurisdiction 


BANKRUPTS  191 

of  one  of  the  partners  may  have  jurisdiction  of  all  of 
the  partners  and  of  the  administration  of  the  partner- 
ship and  individual  property. 

d.  The  trustee  shall  keep  separate  accounts  of  the 
partnership  property  and  of  the  property  belonging  to 
the  individual  partners. 

e.  The  expenses  shall  be  paid  from  the  partnership 
property  and  the  individual  property  in  such  propor- 
tions as  the  court  shall  determine. 

f.  The  net  proceeds  of  the  partnership  property  shall 
be  appropriated  to  the  payment  of  the  partnership 
debts,  and  the  net  proceeds  of  the  individual  estate  of 
each  partner  to  the  payment  of  his  individual  debts. 
Should  any  surplus  remain  of  the  property  of  any  part- 
ner after  paying  his  individual  debts,  such  surplus  shall 
be  added  to  the  partnership  assets  and  be  applied  to 
the  payment  of  the  partnership  debts.  Should  any 
surplus  of  the  partnership  property  remain  after  paying 
the  partnership  debts,  such  surplus  shall  be  added  to 
the  assets  of  the  individual  partners  in  the  proportion 
of  their  respective  interests  in  the  partnership. 

g.  The  court  may  permit  the  proof  of  the  claim  of 
the  partnership  estate  against  the  individual  estates, 
and  vice  versa,  and  may  marshal  the  assets  of  the  part- 
nership estate  and  individual  estates  so  as  to  prevent 
preferences  and  secure  the  equitable  distribution  of  the 
property  of  the  several  estates. 

h.  In  the  event  of  one  or  more  but  not  all  of  the 


192  MERCANTILE   CREDITS  AND  COLLECTIONS 

members  of  a  partnership  being  adjudged  bankrupt, 
the  partnership  property  shall  not  be  administered  in 
bankruptcy,  unless  by  consent  of  the  partner  or  partners 
not  adjudged  bankrupt;  but  such  partner  or  partners 
not  adjudged  bankrupt  shall  settle  the  partnership 
business  as  expeditiously  as  its  nature  will  permit,  and 
account  for  the  interest  of  the  partner  or  partners  ad- 
judged bankrupt. 

Exemptions  of  Bankrupts : 

Sec.  6. — a.  This  Act  shall  not  affect  the  allowance 
to  bankrupts  of  the  exemptions  which  are  prescribed 
by  the  State  laws  in  force  at  the  time  of  the  filing  of  the 
petition  in  the  State  wherein  they  have  had  their  domi- 
cile for  the  six  months  or  the  greater  portion  thereof 
immediately  preceding  the  fiHng  of  the  petition. 

Duties  of  Bankrupts : 

Sec.  7. — a.  The  bankrupt  shall  (1)  attend  the  first 
meeting  of  his  creditors,  if  directed  by  the  court  or  a 
judge  thereof  to  do  so,  and  the  hearing  upon  his  appli- 
cation for  a  discharge,  if  filed;  (2)  comply  with  all  law- 
ful orders  of  the  court;  (3)  examine  the  correctness  of 
all  proofs  of  claims  filed  against  his  estate;  (4)  execute 
and  deliver  such  papers  as  shall  be  ordered  by  the  court; 
(5)  execute  to  his  trustee  transfers  of  all  his  property 
in  foreign  countries;  (6)  immediately  infonn  his  trustee 
of  any  attempt,  by  his  creditors,  or  other  persons,  to 
evade  the  provisions  of  this  Act,  coming  to  his  knowl- 


BANKRUPTS  193 

edge;  (7)  in  case  of  any  person  having  to  his  knowledge 
proved  a  false  claim  against  his  estate,  disclose  that  fact 
immediately  to  his  trustee;  (8)  prepare,  make  oath  to, 
and  file  in  court  within  ten  days,  unless  further  time 
is  granted,  after  the  adjudication,  if  an  involuntary 
bankrupt,  and  with  the  petition  if  a  voluntary  bank- 
rupt, a  schedule  of  his  property,  showing  the  amount 
and  kind  of  property,  the  location  thereof,  its  money 
value  in  detail,  and  a  list  of  his  creditors,  showing  their 
residences,  if  unknown,  that  fact  to  be  stated,  the 
amounts  due  each  of  them,  the  consideration  thereof, 
the  security  held  by  them,  if  any,  and  a  claim  for  such 
exemptions  as  he  may  be  entitled  to,  all  in  triplicate, 
one  copy  of  each  for  the  clerk,  one  for  the  referee,  and 
one  for  the  trustee;  and  (9)  when  present  at  the  first 
meeting  of  his  creditors,  and  at  such  other  times  as  the 
court  shall  order,  submit  to  an  examination  concerning 
the  conducting  of  his  business,  the  cause  of  his  bank- 
ruptcy, his  dealings  with  his  creditors,  and  other  per- 
sons, the  amount,  kind,  and  whereabouts  of  his  prop- 
erty, and,  in  addition,  all  matters  which  may  affect 
the  administration  and  settlement  of  his  estate;  but 
no  testimony  given  by  him  shall  be  offered  in  evidence 
against  him  in  any  criminal  proceeding. 

Provided,  however,  that  he  shall  not  be  required  to 
attend  a  meeting  of  his  creditors,  or  at  or  for  an  examina- 
tion at  a  place  more  than  one  hundred  and  fifty  miles 
distant  from  his  home  or  principal  place  of  business, 


194  MERCANTILE   CREDITS  AND  COLLECTIONS 

or  to  examine  claims  except  when  presented  to  him, 
unless  ordered  by  the  court,  or  a  judge  thereof,  for 
cause  shown,  and  the  bankrupt  shall  be  paid  his  actual 
expenses  from  the  estate  when  examined  or  required  to 
attend  at  any  place  other  than  the  city,  town  or  village 
of  his  residence. 

Death  or  Insanity  of  Bankrupts : 

Sec.  8. — a.  The  death  or  insanity  of  a  bankrupt 
shall  not  abate  the  proceedings,  but  the  same  shall  be 
conducted  and  concluded  in  the  same  manner,  so  far 
as  possible,  as  though  he  had  not  died  or  become  insane: 
Provided,  that  in  case  of  death  the  widow  and  children 
shall  be  entitled  to  all  rights  of  dower  and  allowance 
fixed  by  the  laws  of  the  State  of  the  bankrupt's  resi- 
dence. 

Protection  and  Detention  of  Bankrupts : 

Sec.  9. — a.  A  bankrupt  shall  be  exempt  from  arrest 
upon  civil  process  except  in  the  following  cases :  (1)  When 
issued  from  a  court  of  bankruptcy  for  contempt  or 
disobedience  of  its  lawful  orders;  (2)  when  issued  from 
a  State  court  having  jurisdiction,  and  served  A\Hhin 
such  State,  upon  a  debt  or  claim  from  which  his  dis- 
charge in  bankruptcy  would  not  be  a  release,  and  in 
such  case  he  shall  be  exempt  from  such  arrest  when  in 
attendance  upon  a  court  of  bankruptcy  or  engaged  in 
the  performance  of  a  duty  imposed  by  this  Act. 

b.  The  judge  may,  at  any  time  after  the  filing  of  a 


BANKRUPTS  195 

petition  by  or  against  a  person,  and  before  the  expira- 
tion of  one  montti  after  the  qualification  of  the  trustee, 
upon  satisfactory  proof  by  the  affidavits  of  at  least  two 
persons  that  such  bankrupt  is  about  to  leave  the  dis- 
trict in  which  he  resides  or  has  his  principal  place  of 
business  to  avoid  examination,  and  that  his  departure 
will  defeat  the  proceedings  in  bankruptcy,  issue  a  war- 
rant to  the  marshal,  directing  him  to  bring  such  bank- 
rupt forthwith  before  the  court  for  examination.  If 
upon  hearing  the  evidence  of  the  parties  it  shall  appear 
to  the  court  or  a  judge  thereof  that  the  allegations  are 
true  and  that  it  is  necessary,  he  shall  order  such  mar- 
shal to  keep  such  bankrupt  in  custody  not  exceeding 
ten  days,  but  not  imprison  him,  until  he  shall  be  ex- 
amined and  released  or  give  bail  conditioned  for  his 
appearance  for  examination,  from  time  to  time,  not 
exceeding  in  all  ten  days,  as  required  by  the  court,  and 
for  his  obedience  to  all  lawful  orders  made  in  reference 
thereto. 

Extradition  of  Bankrupts : 

Sec.  10. — a.  Whenever  a  warrant  for  the  appre- 
hension of  a  bankrupt  shall  have  been  issued,  and  he 
shall  have  been  found  within  the  jurisdiction  of  a  court 
other  than  the  one  issuing  the  warrant,  he  may  be 
extradited  in  the  same  manner  in  which  persons  under 
indictment  are  now  extradited  from  one  district  within 
which  a  district  court  has  jurisdiction  to  another. 


196  MERCANTILE   CREDITS   AND   COLLECTIONS 

Suits  By  and  Against  Bankrupts : 

Sec.  11. — a.  A  suit  which  is  founded  upon  a  claim 
from  which  a  discharge  would  be  a  release,  and  which 
is  pending  against  a  person  at  the  time  of  the  filing  of  a 
petition  against  him,  shall  be  stayed  until  after  an 
adjudication  or  the  dismissal  of  the  petition;  if  such 
person  is  adjudged  a  bankrupt,  such  action  may  be  fur- 
ther stayed  until  twelve  months  after  the  date  of  such 
adjudication,  or,  if  within  that  time  such  person  applies 
for  a  discharge,  then  until  the  question  of  such  dis- 
charge is  determined. 

b.  The  court  may  order  the  trustee  to  enter  his  ap- 
pearance and  defend  any  pending  suit  against  the  bank- 
rupt. 

c.  A  trustee  may,  with  the  approval  of  the  court,  be 
permitted  to  prosecute  as  trustee  any  suit  commenced 
by  the  bankrupt  prior  to  the  adjudication,  with  like 
force  and  effect  as  though  it  had  been  commenced  by 
him. 

d.  Suits  shall  not  be  brought  by  or  against  a  trustee 
of  a  bankrupt  estate  subsequent  to  two  years  after  the 
estate  has  been  closed. 

Compositions,  when  Confirmed : 

Sec.  12. — a.  A  bankrupt  may  offer,  either  before  or 
after  adjudication,  terms  of  composition  to  his  creditors 
after,  but  not  before,  he  has  been  examined  in  open 
court  or  at  a  meeting  of  his  creditors  and  has  filed  in 


BANKRUPTS  197 

court  the  schedule  of  his  property  and  hst  of  his  creditors, 
required  to  be  filed  by  bankrupts.  In  compositions 
before  adjudication  the  bankrupt  shall  file  the  required 
schedules,  and  thereupon  the  court  shall  call  a  meeting 
of  creditors  for  the  allowance  of  claims,  examination 
of  the  bankrupt,  and  preservation  or  conduct  of  estates, 
at  which  meeting  the  judge  or  referee  shall  preside,  and 
action  upon  the  petition  for  adjudication  shall  be  de- 
layed until  it  shall  be  determined  whether  such  com- 
position shall  be  confirmed. 

b.  An  apphcation  for  the  confirmation  of  a  com- 
position may  be  filed  in  the  court  of  bankruptcy  after, 
but  not  before,  it  has  been  accepted  in  writing  by  a 
majority  in  number  of  all  creditors  whose  claims  have 
been  allowed,  which  number  must  represent  a  majority 
in  amount  of  such  claims,  and  the  consideration  to  be 
paid  by  the  bankrupt  to  his  creditors,  and  the  money 
necessary  to  pay  all  debts  which  have  priority  and  the 
cost  of  the  proceedings,  have  been  deposited  in  such 
place  as  shall  be  designated  by  the  subject  to  the  order 
of  the  judge. 

c.  A  date  and  place,  with  reference  to  the  convenience 
of  the  parties  in  interest,  shall  be  fixed  for  the  hearing 
upon  each  application  for  the  confirmation  of  a  com- 
position, and  such  objections  as  may  be  made  to  its 
confirmation. 

d.  The  judge  shall  confirm  a  composition  if  satisfied 
that  (1)  it  is  for  the  best  interests  of  the  creditors;  (2) 


198  MERCANTILE    CREDITS   AND    COLLECTIONS 

the  bankrupt  has  not  been  guilty  of  any  of  the  acts  or 
failed  to  perform  any  of  the  duties  which  would  be  a  bar 
to  his  discharge;  and  (3)  the  offer  and  its  acceptance 
are  in  good  faith  and  have  not  been  made  or  procured 
except  as  herein  provided,  or  by  any  means,  promises, 
or  acts  herein  forbidden, 

e.  Upon  the  confirmation  of  a  composition,  the  con- 
sideration shall  be  distributed  as  the  judge  shall  direct, 
and  the  case  dismissed.  Whenever  a  composition  is 
not  confirmed,  the  estate  shall  be  administered  in  bank- 
ruptcy as  herein  provided. 

Compositions,  when  set  Aside : 

Sec.  13. — a.  The  judge  may,  upon  the  application 
of  parties  in  interest  filed  at  any  time  within  six  months 
after  a  composition  has  been  confirmed,  set  the  same 
aside  and  reinstate  the  case  if  it  shall  be  made  to  appear 
upon  a  trial  that  fraud  was  practiced  in  the  procuring 
of  such  composition,  and  that  the  knowledge  thereof 
has  come  to  the  petitioners  since  the  confirmation  of 
such  composition. 

Discharges,  when  Granted: 

Sec.  14. — a.  Any  person  may,  after  the  expiration  of 
one  month  and  within  the  next  twelve  months  subse- 
quent to  being  adjudged  a  bankrupt,  file  an  applica- 
tion for  a  discharge  in  the  court  of  bankruptcy  in  which 
the  proceedings  are  pending;  if  it  shall  be  made  to  ap- 
pear to  the  judge  that  the  bankrupt  was  unavoidably 


BANKRUPTS  199 

prevented  from  filing  it  within  such  time,  it  may  be 
filed  within  but  not  after  the  expiration  of  the  next 
six  months. 

b.  The  judge  shall  hear  the  application  for  a  dis- 
charge, and  such  proofs  and  pleas  as  may  be  made  in 
opposition  thereto  by  the  trustee  or  other  parties  in 
interest,  at  such  time  as  will  give  the  trustee  or  parties 
in  interest  a  reasonable  opportunity  to  be  fully  heard, 
and  investigate  the  merits  of  the  application  and  dis- 
charge the  applicant  unless  he  has  (1)  committed  an 
offense  punishable  by  imprisonment  as  herein  provided; 
or  (2)  with  intent  to  conceal  his  financial  condition, 
destroyed,  concealed,  or  failed  to  keep  books  of  account 
or  records  from  which  such  condition  might  be  ascer- 
tained; or  (3)  obtained  money  or  property  on  credit 
upon  a  materially  false  statement  in  writing  made  by 
him  to  any  person  or  his  representative  for  the  purpose 
of  obtaining  credit  from  such  person;  (4)  at  any  time 
subsequent  to  the  first  day  of  the  four  months  imme- 
diately preceding  the  filing  of  the  petition  transferred 
removed,  destroyed,  or  concealed  any  of  his  property 
with  intent  to  hinder,  delay  or  defraud  his  creditors; 
or  (5)  in  voluntary  proceedings  been  granted  a  dis- 
charge in  bankruptcy  within  six  years;  or  (6)  in  the 
course  of  the  proceedings  in  bankruptcy  refused  to  obey 
any  lawful  order  of,  or  to  answer  any  material  question 
approved  by  the  court:  Provided,  that  a  trustee  shall 
not   interpose   objections   to   a   bankrupt's   discharge 


200  MERCANTILE   CREDITS   AND    COLLECTIONS 

until  he  shall  be  authorized  so  to  do  at  a  meeting  of 
creditors  called  for  that  purpose. 

c.  The  confirmation  of  a  composition  shall  discharge 
the  bankrupt  from  his  debts,  other  than  those  agreed 
to  be  paid  by  the  terms  of  the  composition  and  those 
not  affected  by  a  discharge. 

Discharges,  when  Revoked : 

Sec.  15. — a.  The  judge  may,  upon  the  application 
of  parties  in  interest  who  have  not  been  guilty  of  undue 
laches,  filed  at  any  time  within  one  year  after  a  dis- 
charge shall  have  been  granted,  revoke  it  upon  a  trial 
if  it  shall  be  made  to  appear  that  it  was  obtained  through 
the  fraud  of  the  bankrupt,  and  that  the  knowledge  of 
the  fraud  has  come  to  the  petitioners  since  the  granting 
of  the  discharge,  and  that  the  actual  facts  did  not  war- 
rant the  discharge. 

Co-Debtors  of  Bankrupts: 

Sec.  16. — a.  The  liability  of  a  person  who  is  a  co- 
debtor  with  or  guarantor  or  in  manner  surety  for,  a 
bankrupt  shall  not  be  altered  by  the  discharge  of  such 
bankrupt. 

Debts  not  AjEfected  by  Discharge : 

Sec.  17. — a.  A  discharge  in  bankruptcy  shall  re- 
lease a  bankrupt  from  all  of  his  provable  debts,  except 
such  as  (1)  are  due  as  a  tax  levied  by  the  United  States, 
the  State,  county,  district  or  municipality  in  which  he 
resides;  (2)  are  liabilities  for  obtaining  property  by  false 


BANKRUPTS  201 

pretenses  or  false  representations,  or  for  willful  and  ma- 
licious injuries  to  the  person  or  property  of  another,  or 
for  alimony  due  or  to  become  due,  or  for  maintenance  or 
support  of  wife  or  child,  or  for  seduction  of  an  unmarried 
female,  or  for  criminal  conversation;  (3)  have  not  been 
duly  scheduled  in  time  for  proof  and  allowance,  with 
the  name  of  the  creditor  if  known  to  the  bankrupt, 
unless  such  creditor  had  notice  or  actual  knowledge 
of  the  proceedings  in  bankruptcy;  or  (4)  were  created 
by  his  fraud,  embezzlement,  misappropriation,  or  de- 
falcation while  acting  as  an  officer  or  in  any  fiduciary 
capacity. 


CHAPTER  IV 

COURTS  AND  PROCEDURE  THEREIN 

Process,  Pleadings,  and  Adjudications : 

Sec.  18. — a.  Upon  the  filing  of  a  petition  for  involun- 
tary bankruptcy,  service  thereof,  with  a  writ  of  sub- 
poena, shall  be  made  upon  the  person  therein  named 
as  defendant  in  the  same  manner  that  service  of  such 
process  is  now  had  upon  the  commencement  of  a  suit 
in  equity  in  the  courts  of  the  United  States,  except 
that  it  shall  be  returnable  within  fifteen  days,  unless 
the  judge  shall  for  cause  fix  a  longer  time;  but  in  case 
personal  service  can  not  be  made,  then  notice  shall  be 
given  by  pubhcation  in  the  same  manner  and  for  the 
same  time  as  provided  by  law  for  notice  by  pubhca- 
tion in  suits  to  enforce  a  legal  or  equitable  lien  in  courts 
of  the  United  States,  except  that,  unless  the  judge  shall 
otherwise  direct,  the  order  shall  be  published  not  more 
than  once  a  week  for  two  consecutive  weeks,  and  the 
return  day  shall  be  ten  days  after  the  last  pubhcation 
unless  the  judge  shall  for  cause  fix  a  longer  time. 

b.  The  bankrupt,  or  any  creditor,  may  appear  and 
plead  to  the  petition  within  five  days  after  the  return 
day,  or  within  such  further  time  as  the  court  may  allow. 

c.  All  pleadings  setting  up  matters  of  fact  shall  be 
verified  under  oath. 

202 


COURTS  AND  PROCEDURE  THEREIN       203 

d.  If  the  bankrupt,  or  any  of  his  creditors,  shall 
appear,  within  the  time  limited,  and  controvert  the 
facts  alleged  in  the  petition,  the  judge  shall  determine, 
as  soon  as  may  be,  the  issues  presented  by  the  pleading, 
without  the  intervention  of  a  jury,  except  in  cases  where 
a  jury  trial  is  given  by  this  Act,  and  make  the  adjudi- 
cation or  dismiss  the  petition. 

e.  If  on  the  last  day  within  which  pleadings  may  be 
filed  none  are  filed  by  the  bankrupt  or  any  of  his  credi- 
tors, the  judge  shall  on  the  next  day,  if  present,  or  as 
soon  thereafter  as  practicable,  make  the  adjudication  or 
dismiss  the  petition. 

f.  If  the  judge  is  absent  from  the  district,  or  the  divi- 
sion of  the  district  in  which  the  petition  is  pending,  on 
the  next  day  after  the  last  day  on  which  pleadings  may 
be  filed,  and  none  have  been  filed  by  the  bankrupt  or 
any  of  his  creditors,  the  clerk  shall  forthwith  refer  the 
case  to  the  referee. 

g.  Upon  the  filing  of  a  voluntary  petition  the  judge 
shall  hear  the  petition  and  make  the  adjudication  or 
dismiss  the  petition.  If  the  judge  is  absent  from  the 
district,  or  the  division  of  the  district  in  which  the  peti- 
tion is  filed,  at  the  time  of  the  filing,  the  clerk  shall 
forthwith  refer  the  case  to  the  referee. 

Jury  Trials : 

Sec.  19. — a.  A  person  against  whom  an  involuntary 
petition  has  been  filed  shall  be  entitled  to  have  a  trial 


204  MERCANTILE     CREDITS  AND  COLLECTIONS 

by  jury,  in  respect  to  the  question  of  his  insolvency, 
except  as  herein  otherwise  provided,  and  any  act  of 
bankruptcy  alleged  in  such  petition  to  have  been  com- 
mitted, upon  fiUng  a  written  application  therefor  at 
or  before  the  time  within  which  an  answer  may  be 
filed.  If  such  application  is  not  filed  within  such 
time,  a  trial  by  jury  shall  be  deemed  to  have  been 
waived. 

b.  If  a  jury  is  not  in  attendance  upon  the  court,  one 
may  be  specially  summoned  for  the  trial,  or  the  case 
may  be  postponed,  or,  if  the  case  is  pending  in  one  of 
the  district  courts  within  the  jurisdiction  of  a  circuit 
court  of  the  United  States,  it  may  be  certified  for  trial 
to  the  circuit  court  sitting  at  the  same  place,  or  by  con- 
sent of  parties  when  sitting  at  any  other  place  in  the 
same  district,  if  such  circuit  court  has  or  is  to  have  a 
jury  first  in  attendance. 

c.  The  right  to  submit  matters  in  controversy,  or 
an  alleged  offense  under  this  Act,  to  a  jury  shall  be 
determined  and  enjoyed,  except  as  provided  by  this 
Act,  according  to  the  United  States  laws  now  in  force 
or  such  as  may  be  hereafter  enacted  in  relation  to  trials 
by  jury. 

Oaths,  Affirmations : 

Sec.  20. — a.  Oaths  required  by  this  Act,  except  upon 
hearings  in  court,  may  be  administered  by  (1)  referees; 
(2)  officers  authorized  to  administer  oaths  in  proceed- 


COURTS  AND  PROCEDURE  THEREIN       205 

ings  before  the  courts  of  the  United  States,  or  under 
the  laws  of  the  State  where  the  same  are  to  be  taken; 
and  (3)  diplomatic  or  consular  officers  of  the  United 
States  in  any  foreign  country. 

b.  Any  person  conscientiously  opposed  to  taking  an 
oath  may,  in  lieu  thereof,  affirm.  Any  person  who 
shall  affirm  falsely  shall  be  punished  as  for  the  making 
of  a  false  oath. 

Evidence : 

Sec.  21. — a.  A  court  of  bankruptcy  may,  upon  appli- 
cation of  any  officer,  bankrupt,  or  creditor,  by  order 
require  any  designated  person,  including  the  bankrupt 
and  his  wife,  to  appear  in  court  or  before  a  referee  or 
the  judge  of  any  State  court,  to  be  examined  concerning 
the  acts,  conduct,  or  property  of  a  bankrupt,  whose 
estate  is  in  process  of  administration  under  this  Act: 
Provided,  That  the  wife  may  be  examined  only  touch- 
ing business  transacted  by  her  or  to  which  she  is  a 
party,  and  to  determine  the  fact  whether  she  has 
transacted  or  been  a  party  to  any  business  of  the 
bankrupt. 

b.  The  right  to  take  depositions  in  proceedings  under 
this  Act  shall  be  determined  and  enjoyed  according  to 
the  United  States  laws  now  in  force,  or  such  as  may  be 
hereafter  enacted  relating  to  the  taking  of  depositions, 
except  as  herein  provided. 

c.  Notice  of  the  taking  of  depositions  shall  be  filed 


206  MERCANTILE    CREDITS   AND   COLLECTIONS 

with  the  referee  in  every  case.  When  depositions  are 
to  be  taken  in  opposition  to  the  allowance  of  a  claim 
notice  shall  also  be  served  upon  the  claimant,  and 
when  in  opposition  to  a  discharge  notice  shall  also  be 
served  upon  the  bankrupt. 

d.  Certified  copies  of  proceedings  before  a  referee, 
or  of  papers,  when  issued  by  the  clerk  or  referee,  shall 
be  admitted  as  evidence  with  like  force  and  effect  as 
certified  copies  of  the  records  of  district  courts  of  the 
United  States  are  now  or  may  hereafter  be  admitted 
as  evidence. 

e.  A  certified  copy  of  the  order  approving  the  bond 
of  a  trustee  shall  constitute  conclusive  evidence  of  the 
vesting  in  him  of  the  title  to  the  property  of  the  bank- 
rupt, and  if  recorded  shall  impart  the  same  notice  that 
a  deed  from  the  bankrupt  to  the  trustee  if  recorded 
would  have  imparted  had  not  the  bankruptcy  pro- 
ceedings intervened. 

f.  A  certified  copy  of  an  order  confirming  or  setting 
aside  a  composition,  or  granting  or  setting  aside  a  dis- 
charge, not  revoked,  shall  be  evidence  of  the  juris- 
diction of  the  court,  the  regularity  of  the  proceedings, 
and  of  the  fact  that  that  the  order  was  made. 

g.  A  certified  copy  of  an  order  confirming  a  com- 
position shall  constitute  evidence  of  the  revesting  of 
the  title  of  his  property  in  the  bankrupt,  and  if  recorded 
shall  impart  the  same  notice  that  a  deed  from  the  trustee 
to  the  bankrupt  if  recorded  would  impart. 


COURTS  AND   PROCEDURE  THEREIN  207 

Reference  of  Cases  after  Adjudication : 

Sec.  22. — a.  After  a  person  has  been  adjudged  a  bank- 
rupt the  judge  may  cause  the  trustee  to  proceed  with 
the  administration  of  the  estate,  or  refer  it  (1)  generally 
to  the  referee  or  specially  with  only  limited  authority 
to  act  in  the  premises  or  to  consider  and  report  upon 
specified  issues;  or  (2)  to  any  referee  within  the  terri- 
torial jurisdiction  of  the  court,  if  the  convenience  of 
parties  in  interest  will  be  served  thereby,  or  for  cause, 
or  if  the  bankrupt  does  not  do  business,  reside,  or  have 
his  domicile  in  the  district. 

b.  The  judge  may,  at  any  time,  for  the  convenience 
of  parties  or  for  cause,  transfer  a  case  from  one  referee 
to  another. 

Jurisdiction  of  United  States  and  State  Courts : 

Sec.  23. — a.  The  United  States  circuit  courts  shall 
have  jurisdiction  of  all  controversies  at  law  and  in 
equity,  as  distinguished  from  proceedings  in  bankruptcy, 
between  trustees  as  such  and  adverse  claimants  con- 
cerning the  property  acquired  or  claimed  by  the  trustees, 
in  the  same  manner  and  to  the  same  extent  only  as 
though  bankruptcy  proceedings  had  not  been  instituted 
and  such  controversies  had  been  between  the  bankrupts 
and  such  adverse  claimants. 

b.  Suits  by  the  trustees  shall  be  brought  or  prose- 
cuted in  the  courts  where  the  bankrupt,  whose  estate 
is  being  administered  by  such   trustee,   might  have 


208  MERCANTILE    CREDITS   AND    COLLECTIONS 

brought  or  prosecuted  them  if  proceedings  in  bank- 
ruptcy had  not  been  instituted,  unless  by  consent  of 
the  proposed  defendant,  except  suits  for  the  recovery 
of  property  under  section  sixty,  subdivision  b,  and 
section  sixty-seven,  subdivision  e;  and  section  seventy, 
subdivision  e. 

c.  The  United  States  circuit  court  shall  have  con- 
current jurisdiction  with  the  courts  of  bankruptcy, 
within  their  respective  territorial  limits,  of  the  offenses 
enumerated  in  this  Act. 

Jurisdiction  of  Appellate  Courts : 

Sec.  24. — a.  The  Supreme  Court  of  the  United  States, 
the  circuit  courts  of  appeals  of  the  United  States,  and 
the  supreme  courts  of  the  Territories,  in  vacation  in 
chambers  and  during  their  respective  terms,  as  now 
or  as  they  may  be  hereafter  held,  are  hereby  invested 
with  appellate  jurisdiction  of  controversies  arising  in 
bankruptcy  proceedings  from  the  courts  of  bankruptcy 
from  which  they  have  appellate  jurisdiction  in  other 
cases.  The  Supreme  Court  of  the  United  States 
shall  exercise  a  like  jurisdiction  from  courts  of  bank- 
ruptcy not  within  any  organized  circuit  of  the  United 
States  and  from  the  supreme  court  of  the  District  of 
Columbia. 

b.  The  several  circuit  courts  of  appeal  shall  have 
jurisdiction  in  equity,  either  interlocutory  or  final,  to 
superintend  and  revise  in  matter  of  law  the  proceedings 


COURTS   AND    PROCEDURE   THEREIN  209 

of  the  several  inferior  courts  of  bankruptcy  within  their 
jurisdiction.  Such  power  shall  be  exercised  on  due 
notice  and  petition  by  any  party  aggrieved. 

Appeals  and  Writs  of  Error: 

Sec.  25. — a.  That  appeals,  as  in  equity  cases,  may 
be  taken  in  bankruptcy  proceedings  from  the  courts 
of  bankruptcy  to  the  circuit  court  of  appeals  of  the 
United  States,  and  to  the  supreme  court  of  the  Terri- 
tories, in  the  following  cases,  to-wit,  (1)  from  a  judg- 
ment adjudging  or  refusing  to  adjudge  the  defendant  a 
bankrupt;  (2)  from  a  judgment  granting  or  denying  a 
discharge;  and  (3)  from  a  judgment  allowing  or  rejecting 
a  debt  or  claim  of  five  hundred  dollars  or  over.  Such 
appeal  shall  be  taken  within  ten  days  after  the  judgment 
appealed  from  has  been  rendered,  and  may  be  heard 
and  determined  by  the  appellate  court  in  term  or  vaca- 
tion, as  the  case  may  be, 

b.  From  any  final  decision  of  a  court  of  appeals 
allowing  or  rejecting  a  claim  under  this  Act,  an  appeal 
may  be  had  under  such  rules  and  within  such  time  as 
may  be  prescribed  by  the  Supreme  Court  of  the  United 
States,  in  the  following  cases  and  no  other: 

1.  Where  the  amount  in  controversy  exceeds  the  sum 
of  two  thousand  dollars,  and  the  question  involved  is 
one  which  might  have  been  taken  on  appeal  or  writ  of 
error  from  the  highest  court  of  a  State  to  the  Supreme 
Court  of  the  United  States;  or 


210  MERCANTILE   CREDITS   AND    COLLECTIONS 

2.  Where  some  Justice  of  the  Supreme  Court  of  the 
United  States  shall  certify  that  in  his  opinion  the  deter- 
mination of  the  question  or  questions  involved  in  the 
allowance  or  rejection  of  such  claim  is  essential  to  a 
uniform  construction  of  this  Act  throughout  the  United 
States. 

c.  Trustees  shall  not  be  required  to  give  bond  when 
they  take  appeals  or  sue  out  writs  of  error. 

d.  Controversies  may  be  certified  to  the  Supreme 
Court  of  the  United  States  from  other  courts  of  the 
United  States,  and  the  former  court  may  exercise 
jm*isdiction  thereof  and  issue  writs  of  certiorari  pur- 
suant to  the  provisions  of  the  United  States  laws  now 
in  force  or  such  as  may  be  hereafter  enacted. 

Arbitration  of  Controversies : 

Sec.  26. — a.  The  trustee  may,  pursuant  to  the  di- 
rection of  the  court,  submit  to  arbitration  any  contro- 
versy arising  in  the  settlement  of  the  estate. 

b.  Three  arbitrators  shall  be  chosen  by  mutual  con- 
sent, or  one  by  the  trustee,  one  by  the  other  party  to 
the  controversy,  and  the  third  by  the  two  so  chosen, 
or  if  they  fail  to  agree  in  five  days  after  their  appoint- 
ment the  court  shall  appoint  the  third  arbitrator. 

c.  The  written  finding  of  the  arbitrators,  or  a  majority 
of  them,  as  to  the  issues  presented,  may  be  filed  in  court 
and  shall  have  like  force  and  effect  as  the  verdict  of  a 
jury. 


COURTS   AND    PROCEDURE   THEREIN  211 

Compromises : 

Sec.  27. — a.  The  trustee  may,  with  the  approval  of 
the  court,  compromise  any  controversy  arising  in  the 
administration  of  the  estate  upon  such  terms  as  he  may 
deem  for  the  best  interests  of  the  estate. 

Designation  of  Newspapers : 

Sec.  28. — a.  Courts  of  bankruptcy  shall  by  order 
designate  a  newspaper  pubUshed  within  their  respective 
territorial  districts,  and  in  the  county  in  which  the  bank- 
rupt resides  or  the  major  part  of  his  property  is  situated, 
in  which  notices  required  to  be  published  by  this  Act 
and  orders  which  the  court  may  direct  to  be  published 
shall  be  inserted.  Any  court  may  in  a  particular  case, 
for  the  convenience  of  parties  in  interest,  designate 
some  additional  newspaper  in  which  notices  and  orders 
in  such  case  shall  be  pubhshed. 

Offenses: 

Sec.  29. — a.  A  person  shall  be  punished,  by  im- 
prisonment for  a  period  not  to  exceed  five  years,  upon 
conviction  of  the  offense  of  having  knowingly  and 
fraudulently  appropriated  to  his  own  use,  embezzled, 
spent,  or  unlawfully  transferred  any  property  or  se- 
creted or  destroyed  any  document  belonging  to  a 
bankrupt  estate  which  came  into  his  charge  as 
trustee. 

b.  A  person  shall  be  punished,  by  imprisonment  for 
a  period  not  to  exceed  two  years,  upon  conviction  of 


212  MERCANTILE   CREDITS   AND    COLLECTIONS 

the  offense  of  having  knowingly  and  fraudulently  (1) 
concealed  while  a  bankrupt,  or  after  his  discharge,  from 
his  trustee  any  of  the  property  belonging  to  his  estate 
in  bankruptcy;  or  (2)  made  a  false  oath  or  account  in, 
or  in  relation  to,  any  proceeding  in  bankruptcy;  (3) 
presented  under  oath  any  false  claim  for  proof  against 
the  estate  of  a  bankrupt,  or  used  any  such  claim  in  com- 
position personally  or  by  agent,  proxj^,  or  attorney,  or 
as  agent,  proxy,  or  attorney;  or  (4)  received  any  ma- 
terial amount  of  property  from  a  bankrupt  after  the 
filing  of  the  petition,  with  intent  to  defeat  this  Act;  or 
(5)  extorted  or  attempted  to  extort  any  money  or  prop- 
erty from  any  person  as  a  consideration  for  acting  or 
forbearing  to  act  in  bankruptcy  proceedings. 

c.  A  person  shall  be  punished  by  fine,  not  to  exceed 
five  hundred  dollars,  and  forfeit  his  office,  and  the  same 
shall  thereupon  become  vacant,  upon  conviction  of  the 
offense  of  knowingly  (1)  acted  as  a  referee  in  a  case  in 
which  he  is  directly  or  indirectly  interested;  or  (2)  pur- 
chased, while  a  referee,  directly  or  indirectly,  any  prop- 
erty of  the  estate  in  bankruptcy  of  which  he  is  referee; 
or  (3)  refused,  while  a  referee  or  trustee,  to  permit  a 
reasonable  opportunity  for  the  inspection  of  the  accounts 
relating  to  the  affairs  of,  and  the  papers  and  records  of, 
estates  in  his  charge  by  parties  in  interest  when  di- 
rected by  the  court  so  to  do. 

d.  A  person  shall  not  be  prosecuted  for  any  offense 
arising  under  this  Act  unless  the  indictment  is  found 


COURTS  AND  PROCEDURE  THEREIN       213 

or  the  information  is  filed  in  court  within  one  year 
after  the  commission  of  the  offense. 

Rules,  Forms  and  Orders : 

Sec.  30. — a.  All  necessary  rules,  forms,  and  orders  as 
to  procedure  and  for  carrying  this  Act  into  force  and 
effect  shall  be  prescribed,  and  may  be  amended  from 
time  to  time,  by  the  Supreme  Court  of  the  United  States. 

Computation  of  Time ; 

Sec.  31. — a.  Whenever  time  is  enumerated  by  days 
in  this  Act,  or  in  any  proceeding  in  bankruptcy,  the 
number  of  days  shall  be  computed  by  excluding  the 
first  and  including  the  last,  unless  the  last  fall  on  a 
Sunday  or  holiday,  in  which  event  the  day  last  included 
shall  be  the  next  day  thereafter  which  is  not  a  Sunday 
or  a  legal  holiday. 

Transfer  of  Cases : 

Sec.  32. — a.  In  the  event  petitions  are  filed  against 
the  same  person,  or  against  different  members  of  a 
partnership,  in  different  courts  of  bankruptcy  each  of 
which  has  jurisdiction,  the  cases  shall  be  transferred, 
by  order  of  the  courts  relinquishing  jurisdiction,  to  and 
be  consolidated  by  the  one  of  such  courts  which  can 
proceed  with  the  same  for  the  greatest  convenience  of 
parties  in  interest. 


CHAPTER  V 

OFFICERS,   THEIR   DUTIES   AND    COMPENSATION 

Creation  of  Two  Offices : 

Sec.  33. — a.  The  offices  of  referee  and  trustee  are 

hereby  created. 

Appointment,  Removal  and  Districts  of  Referees : 

Sec.  34. — a.  Courts  of  bankruptcy  shall,  within  the 
territorial  limits  of  which  they  respectively  have  juris- 
diction, (1)  appoint  referees,  each  for  a  term  of  two 
years,  and  may,  in  their  discretion,  remove  them  be- 
cause their  services  are  not  needed  or  for  other  cause; 
and  (2)  designate,  and  from  time  to  time  change,  the 
limits  of  the  districts  of  referees,  so  that  each  county, 
where  the  services  of  a  referee  are  needed,  may  con- 
stitute at  least  one  district. 

Qualifications  of  Referees : 

Sec.  35. — a.  Individuals  shall  not  be  eligible  to  ap- 
pointment as  referees  unless  they  are  respectively  (1) 
competent  to  perform  the  duties  of  that  office;  (2)  not 
holding  any  office  of  profit  or  emolument  under  the 
laws  of  the  United  States  or  of  any  State  other  than 
commissioners  of  deeds,  justices  of  the  peace,  masters 
in  chancery,  or  notaries  pubhc;  (3)  not  related  by  con- 

214 


OFFICERS,  THEIR   DUTIES   AND    COMPENSATIONS      215 

sanguinity  or  affinity,  within  the  third  degree  as  deter- 
mined by  the  common  law,  to  any  of  the  judges  of  the 
courts  of  bankruptcy  or  circuit  courts  of  the  United 
States,  or  of  the  justices  or  judges  of  the  appellate 
courts  of  the  districts  wherein  they  may  be  appointed; 
and  (4)  residents  of,  or  have  their  offices  in,  the  terri- 
torial districts  for  which  they  are  to  be  appointed. 

Oaths  of  Office  of  Referees : 

Sec.  36. — a.  Referees  shall  take  the  same  oath  of 
office  as  that  prescribed  for  judges  of  United  States 
courts. 

Number  of  Referees : 

Sec.  37. — a.  Such  number  of  referees  shall  be  ap- 
pointed as  may  be  necessary  to  assist  in  expeditiously 
transacting  the  bankruptcy  business  pending  in  the 
various  courts  of  bankruptcy. 

Jurisdiction  of  Referees : 

Sec.  38. — a.  Referees  respectively  are  hereby  in- 
vested, subject  always  to  a  review  by  the  judge,  within 
the  limits  of  their  districts  as  established  from  time  to 
time,  with  jurisdiction  to  (1)  consider  all  petitions 
referred  to  them  by  the  clerks  and  make  the  adjudi- 
cations or  dismiss  the  petitions;  (2)  exercise  the  powers 
vested  in  courts  of  bankruptcy  for  the  administering 
of  oaths  to  and  the  examination  of  persons  as  witnesses 
and  for  requiring  the  production  of  documents  in  pro- 
ceedings before  them,  except  the  power  of  commitment; 


216  MERCANTILE   CREDITS   AND    COLLECTIONS 

(3)  exercise  the  powers  of  the  judge  for  the  taking  pos- 
session and  releasing  of  the  property  of  the  bankrupt 
in  the  event  of  the  issuance  by  the  clerk  of  a  certificate 
showing  the  absence  of  a  judge  from  the  judicial  dis- 
trict, or  the  division  of  the  district,  or  his  sickness,  or 
inabiUty  to  act;  (4)  perform  such  part  of  the  duties, 
except  as  to  questions  arising  out  of  the  applications 
of  bankrupts  for  compositions  or  discharges,  as  are  by 
this  Act  conferred  on  courts  of  bankruptcy  and  as  shall 
be  prescribed  by  rules  or  orders  of  the  courts  of  bank- 
ruptcy of  their  respective  districts,  except  as  herein 
otherwise  provided;  and  (5)  upon  the  application  of 
the  trustee  diu'ing  the  examination  of  the  bankrupts,  or 
other  proceedings,  authorize  the  employment  of  stenog- 
graphers  at  the  expense  of  the  estates  at  a  compensation 
not  to  exceed  ten  cents  per  folio  for  reporting  and  trans- 
cribing the  proceedings. 

Duties  of  Referees : 

Sec.  39. — a.  Referees  shall  (1)  declare  dividends  and 
prepare  and  dehver  to  trustees  dividend  sheets  showing 
the  dividends  declared  and  to  whom  payable;  (2)  ex- 
amine all  schedules  of  property  and  lists  of  creditors 
filed  by  bankrupts  and  cause  such  as  are  incomplete 
or  defective  to  be  amended;  (3)  furnish  such  infor- 
mation concerning  the  estates  in  process  of  adminis- 
tration before  them  as  may  be  requested  by  the  parties 
in  interest;  (4)  give  notices  to  creditors  as  herein  pro- 


OFFICERS,    THEIR  DUTIES    AND    COMPENSATIONS      217 

vided;  (5)  make  up  records  embodying  the  evidence, 
or  the  substance  thereof,  as  agreed  upon  by  the  parties 
in  contested  matters  arising  before  them,  whenever 
requested  to  do  so  by  either  of  the  parties  thereto,  to- 
gether with  their  findings  therein,  and  transmit  them 
to  the  judges;  (6)  prepare  and  file  the  schedules  of  prop- 
erty and  lists  of  creditors  required  to  be  filed  by  the 
bankrupts,  or  cause  the  same  to  be  done,  when  the  bank- 
rupts fail,  refuse,  or  neglect  to  do  so;  (7)  safely  keep, 
perfect,  and  transmit  to  the  clerks  the  records,  herein 
required  to  be  kept  by  them,  when  the  cases  are  con- 
cluded; (8)  transmit  to  the  clerks  such  papers  as  may 
be  on  file  before  them  whenever  the  same  are  needed 
in  any  proceedings  in  courts,  and  in  like  manner  secure 
the  return  of  such  papers  after  they  have  been  used,  or, 
if  it  be  impracticable  to  transmit  the  original  papers, 
transmit  certified  copies  thereof  by  mail;  (9)  upon  appU- 
cation  of  any  party  in  interest,  preserve  the  evidence 
taken  or  the  substance  thereof  as  agreed  upon  by  the 
parties  before  them  when  a  stenographer  is  not  in 
attendance;  and  (10)  whenever  their  respective  offices 
are  in  the  same  cities  or  towns  where  the  courts  of  bank- 
ruptcy convene,  call  upon  and  receive  from  the  clerks 
all  papers  filed  in  courts  of  bankruptcy  which  have  been 
referred  to  them. 

b.  Referees  shall  not  (1)  act  in  cases  in  which  they 
are  directly  or  indirectly  interested;  (2)  practice  as 
attorneys  and  counselors  at  law  in  any  bankruptcy 


218  MERCANTILE    CREDITS   AND    COLLECTIONS 

proceedings;  or  (3)  purchase,  directly  or  indirectly,  any 
property  of  an  estate  in  bankruptcy. 

Compensation  of  Referees : 

Sec.  40. — a.  Referees  shall  receive  as  full  compensa- 
tion for  their  services,  payable  after  they  are  rendered, 
a  fee  of  fifteen  dollars  deposited  with  the  clerk  at  the 
time  the  petition  is  filed  in  each  case,  except  when  a 
fee  is  not  required  from  a  voluntary  bankrupt,  and 
twenty-five  cents  for  every  proof  of  claim  filed  for 
allowance,  to  be  paid  from  the  estate,  if  any,  as  a  part 
of  the  cost  of  administration,  and  from  estates  which 
have  been  administered  before  them  one  per  centum 
commissions  on  all  moneys  disbursed  to  creditors  by 
the  trustee,  or  one-half  of  one  per  centum  on  the  amount 
to  be  paid  to  creditors  upon  the  confirmation  of  a  com- 
position. 

b.  Whenever  a  case  is  transferred  from  one  referee 
to  another  the  judge  shall  determine  the  proportion  in 
which  the  fee  and  commission  therefor  shall  be  divided 
between  the  referees. 

c.  In  the  event  of  the  reference  of  a  case  being  re- 
voked before  it  is  concluded  and  when  the  case  is  spe- 
cially referred,  the  judge  shall  determine  what  part  of 
the  fee  and  commissions  shall  be  paid  to  the  referee. 

Contempts  before  Referees : 

Sec.  41. — a.  A  person  shall  not,  in  proceedings  be- 
fore a  referee,  (1)  disobey  or  resist  any  lawful  order, 


OFFICERS,    THEIR   DUTIES  AND    COMPENSATIONS      219 

process,  or  writ;  (2)  misbehave  during  a  hearing  or  so 
near  the  place  thereof  as  to  obstruct  the  same;  (3)  neg- 
lect to  produce,  after  having  been  ordered  to  do  so,  any- 
pertinent  document;  or  (4)  refuse  to  appear  after  having 
been  subpoenaed,  or,  upon  appearing,  refuse  to  take  the 
oath  as  a  witness,  or,  after  having  taken  the  oath,  re- 
fuse to  be  examined  according  to  law;  Provided,  That 
no  person  shall  be  required  to  attend  as  a  witness  before 
a  referee  at  a  place  outside  of  the  State  of  his  residence, 
and  more  than  one  hundred  miles  from  such  place  of 
residence,  and  only  in  case  his  lawful  mileage  and  fee 
for  one  day's  attendance  shall  be  first  paid  or  tendered 
to  him. 

b.  The  referee  shall  certify  the  facts  to  the  judge, 
if  any  person  shall  do  any  of  the  things  forbidden  in 
this  section.  The  judge  shall,  thereupon,  in  a  sum- 
mary manner,  hear  the  evidence  as  to  the  acts  com- 
plained of,  and,  if  it  is  such  as  to  warrant  him  in  so  doing, 
punish  such  person  in  the  same  manner  and  to  the  same 
extent  as  for  a  contempt  committed  before  the  court 
of  bankruptcy,  or  commit  such  person  upon  the  same 
conditions  as  if  the  doing  of  the  forbidden  act  had  oc- 
curred with  reference  to  the  process  of,  or  in  the  pres- 
ence of,  the  court. 

Records  of  Referees : 

Sec.  42. — a.  The  records  of  all  proceedings  in  each 
case  before  a  referee  shall  be  kept  as  nearly  as  may  be 


220  MERCANTILE    CREDITS   AND    COLLECTIONS 

in  the  same  manner  as  records  are  now  kept  in  equity 
cases  in  circuit  courts  of  the  United  States. 

b.  A  record  of  the  proceedings  in  each  case  shall  be 
kept  in  a  separate  book  or  books,  and  shall,  together 
with  the  papers  on  file,  constitute  the  records  of  the 
case. 

c.  The  book  or  books  containing  a  record  of  the  pro- 
ceedings shall,  when  the  case  is  conducted  before  the 
referee,  be  certified  to  by  him,  and,  together  with  such 
papers  as  are  on  file  before  him,  be  transmitted  to  the 
court  of  bankruptcy  and  shall  there  remain  as  a  part 
of  the  records  of  the  court. 

Referee's  Absence  or  Disability: 

Sec.  43. — a.  Whenever  the  office  of  a  referee  is  va- 
cant, or  its  occupant  is  absent  or  disqualified  to  act, 
the  judge  may  act,  or  may  appoint  another  referee,  or 
another  referee  holding  an  appointment  under  the  same 
court  may,  by  order  of  the  judge,  temporarily  fill  the 
vacancy. 

Appointment  of  Trustees : 

Sec.  44. — a.  The  creditors  of  a  bankrupt  estate  shall, 
at  their  first  meeting  after  the  adjudication  or  after  a 
vacancy  has  occurred  in  the  office  of  trustee,  or  after 
an  estate  has  been  reopened,  or  after  a  composition  has 
been  set  aside  or  a  discharge  revoked,  or  if  there  is  a 
vacancy  in  the  office  of  trustee,  appoint  one  trustee  or 
three  trustees  of  such  estate.    If  the  creditors  do  not 


OFFICERS,    THEIR   DUTIES   AND    COMPENSATIONS      221 

appoint  a  trustee  or  trustees  as  herein  provided,  the 
court  shall  do  so. 

Qualifications  of  Trustees : 

Sec.  45. — a.  Trustees  may  be  (1)  individuals  who 
are  respectively  competent  to  perform  the  duties  of 
that  office,  and  reside  or  have  an  office  in  the  judicial 
district  within  which  they  are  appointed,  or  (2)  cor- 
porations authorized  by  their  charters  or  by  law  to  act 
in  such  capacity  and  having  an  office  in  the  judicial 
district  within  which  they  are  appointed. 

Death  or  Removal  of  Trustees : 

Sec.  46. — a.  The  death  or  removal  of  a  trustee  shall 
not  abate  any  suit  or  proceeding  which  he  is  prosecuting 
or  defending  at  the  time  of  his  death  or  removal,  but 
the  same  may  be  proceeded  with  or  defended  by  his 
joint  trustee  or  successor  in  the  same  manner  as  though 
the  same  had  been  commenced  or  was  being  defended  by 
such  joint  trustee  alone  or  by  such  successor. 

Duties  of  Trustees : 

Sec.  47. — a.  Trustees  shall  respectively  (1)  account 
for  and  pay  over  to  the  estates  under  their  control  all 
interest  received  by  them  upon  property  of  such  estates; 
(2)  collect  and  reduce  to  money  the  property  of  the 
estates  for  which  they  are  trustees,  under  the  direction 
of  the  court,  and  close  up  the  estate  as  expeditiously 
as  is  compatible  with  the  best  interests  of  the  parties 
in  interest;  and  such  trustees,  as  to  all  property  in  the 


222  MERCANTILE   CREDITS   AND   COLLECTIONS 

custody  or  coming  into  the  custody  of  the  bankruptcy 
court,  shall  be  deemed  vested  with  all  the  rights,  reme- 
dies, and  powers  of  a  creditor  holding  a  lien  by  legal 
or  equitable  proceedings  thereon  and  also  as  to  all  prop- 
erty not  in  the  custody  of  the  bankruptcy  court,  shall 
be  deemed  vested  with  all  the  rights,  remedies,  and 
powers  of  a  judgment  creditor  holding  an  execution 
duly  returned  unsatisfied;  (3)  deposit  all  money  re- 
ceived by  them  in  one  of  the  designated  depositories; 
(4)  disburse  money  only  by  check  or  draft  on  the  de- 
positories in  which  it  has  been  deposited;  (5)  furnish 
such  information  concerning  the  estates  of  which  they 
are  trustees  and  their  administration  as  may  be  re- 
quested by  parties  in  interest;  (6)  keep  regular  accounts 
showing  all  amounts  received  and  from  what  source 
and  all  amounts  expended  and  on  what  accounts;  (7) 
lay  before  the  final  meeting  of  the  creditors  detailed 
statements  of  the  administration  of  the  estates;  (8) 
make  final  reports  and  file  final  accounts  with  the 
courts  fifteen  days  before  the  days  fixed  for  the  final 
meetings  of  the  creditors;  (9)  pay  dividends  within  ten 
days  after  they  are  declared  by  the  referees;  (10)  report 
to  the  courts,  in  writing,  the  condition  of  the  estates 
and  the  amounts  of  money  on  hand,  and  such  other 
details  as  may  be  required  by  the  courts,  within  the 
first  month  after  their  appointment  and  every  two 
months  thereafter,  unless  otherwise  ordered  by  the 
courts;  and  (11)  set  apart  the  bankrupt's  exemptions 


OFFICERS,   THEIR   DUTIES   AND    COMPENSATIONS      223 

and  report  the  items  and  estimated  value  thereof  to 
the  court  as  soon  as  practicable  after  their  appointment. 

b.  Whenever  three  trustees  have  been  appointed  for 
an  estate,  the  concurrence  of  at  least  two  of  them  shall 
be  necessary  to  the  validity  of  their  every  act  concerning 
the  administration  of  the  estate. 

c.  The  trustee  shall,  within  thirty  days  after  the 
adjudication,  file  a  certified  copy  of  the  decree  of  adjudi- 
cation in  the  office  where  convey ancs  of  real  estate  are 
recorded  in  every  county  where  the  bankrupt  owns  real 
estate  not  exempt  from  execution,  and  pay  the  fee  for 
such  filing,  and  he  shall  receive  a  compensation  of  fifty 
cents  for  each  copy  so  filed,  which,  together  with  the 
filing  fee,  shall  be  paid  out  of  the  estate  of  the  bank- 
rupt as  a  part  of  the  cost  and  disbursements  of  the  pro- 
ceedings. 

Compensation  of  Trustees,  Receivers  and  Marshals : 

Sec.  48. — a.  Trustees  shall  receive  for  their  services, 
payable  after  they  are  rendered,  a  fee  of  five  dollars 
deposited  with  the  clerk  at  the  time  the  petition  is  filed 
in  each  case,  except  when  a  fee  is  not  required  from  a  vol- 
untary bankrupt,  and  such  commissions  on  all  moneys 
disbursed  or  turned  over  to  any  person  including  lien 
holders,  by  them,  as  may  be  allowed  by  the  courts,  not 
to  exceed  six  per  centum  on  the  first  five  hundred  dol- 
lars or  less,  four  per  centum  on  moneys  in  excess  of  five 
hundred  dollars  and  less  than  fifteen  hundred  dollars, 


224  MERCANTILE  CREDITS  AND   COLLECTIONS 

two  per  centum  on  moneys  in  excess  of  fifteen  hundred 
dollars,  and  less  than  ten  thousand  dollars,  and  one  per 
centum  on  moneys  in  excess  of  ten  thousand  dollars. 
And  in  case  of  the  confirmation  of  a  composition  after 
the  trustee  has  qualified  the  court  may  allow  him,  as 
compensation,  not  to  exceed  one-half  of  one  per  centum 
of  the  amount  to  be  paid  the  creditors  of  such  com- 
position. 

b.  In  the  event  of  an  estate  being  administered  by 
three  trustees  instead  of  one  trustee  or  by  successive 
trustees,  the  court  shall  apportion  the  fees  and  com- 
missions between  them  according  to  the  services  actually 
rendered,  so  that  there  shall  not  be  paid  to  trustees  for 
the  administering  of  any  estate  a  greater  amount  than 
one  trustee  would  be  entitled  to. 

c.  The  court  may,  in  its  discretion,  withhold  all  com- 
pensation from  any  trustee  who  has  been  removed  for 
cause. 

d.  Receivers  or  marshals  appointed  pursuant  to  sec- 
tion two,  subdivision  three,  of  this  act  shall  receive 
for  their  services,  payable  after  they  are  rendered,  com- 
pensation by  way  of  commission  upon  the  moneys  dis- 
bm'sed  or  turned  over  to  any  person,  including  Hen 
holders,  by  them,  and  also  upon  the  moneys  turned 
over  by  them  or  afterwards  realized  by  the  trustees 
from  property  turned  over  in  kind  by  them  to  the  trus- 
tees, as  the  court  may  allow,  not  to  exceed  six  per  centum 
on  the  first  five  hundred  dollars  or  less,  four  per  centum 


OFFICERS,    THEIR   DUTIES   AND    COMPENSATIONS      225 

on  moneys  in  excess  of  five  hundred  dollars  and  less 
than  one  thousand  five  hundred  dollars,  two  per  centum 
on  moneys  in  excess  of  one  thousand  five  hundred  dol- 
lars and  less  than  ten  thousand  dollars,  and  one  per 
centum  on  moneys  in  excess  of  ten  thousand  dollars: 
Provided,  That  in  case  of  the  confirmation  of  a  com- 
position such  commissions  shall  not  exceed  one-half  of 
one  per  centum  of  the  amount  to  be  paid  creditors  on 
such  compositions:  Provided  further.  That  when  the 
receiver  or  marshal  acts  as  a  mere  custodian  and  does 
not  carry  on  the  business  of  the  bankrupt  as  provided 
in  clause  five  of  section  two  of  this  act,  he  shall  not 
receive  nor  be  allowed  in  any  form  or  guise  more  than 
two  per  centum  on  the  first  thousand  dollars  or  less, 
and  one-half  of  one  per  centum  on  all  above  one  thou- 
sand dollars  on  moneys  subsequently  realized  from 
property  turned  over  by  him  in  kind  to  the  trustee; 
Provided  further,  That  before  the  allowance  of  com- 
pensation notice  of  application  therefor,  specifying  the 
amoimt  asked,  shall  be  given  to  creditors  in  the  manner 
indicated  in  section  fifty-eight  of  this  act. 

e.  Where  the  business  is  conducted  by  trustees, 
marshals,  or  receivers,  as  provided  in  clause  five  of 
section  two  of  this  act,  the  court  may  allow  such  officers 
additional  compensation  for  such  services  by  way  of 
commissions  upon  the  moneys  disbursed  or  turned  over 
to  any  person,  including  lien  holders,  by  them,  and,  in 
cases  of  receivers  or  marshals,  also  upon  the  moneys 


226  MERCANTILE    CREDITS   AND    COLLECTIONS 

turned  over  by  them  or  afterwards  realized  by  the 
trustees  from  property  turned  over  in  kind  by  them 
to  the  trustees;  such  commissions  not  to  exceed  six  per 
centum  on  the  first  five  hundred  dollars  or  less,  four 
per  centum  on  moneys  in  excess  of  five  hundred  dollars 
and  less  than  one  thousand  five  hundred  dollars,  two 
per  centum  on  moneys  in  excess  of  one  thousand  five 
hundred  dollars  and  less  than  ten  thousand  dollars, 
and  one  per  centum  on  moneys  in  excess  of  ten  thousand 
dollars:  Provided,  That  in  case  of  the  confirmation  of 
a  composition  such  commissions  shall  not  exceed  one- 
half  of  one  per  centum  of  the  amount  to  be  paid  creditors 
on  such  composition:  Provided  further.  That  before 
the  allowance  of  compensation  notice  of  application 
therefor,  specifying  the  amount  asked,  shall  be  given 
to  creditors  in  the  manner  indicated  in  section  fifty- 
eight  of  this  act. 

Accounts  and  Papers  of  Trustees : 

Sec.  49. — a.  The  accounts  and  papers  of  trustees 
shall  be  open  to  the  inspection  of  officers  and  all  parties 
in  interest. 

Bonds  of  Referees  and  Trustees: 

Sec.  50. — a.  Referees,  before  assuming  the  duties 
of  their  offices,  and  within  such  time  as  the  district 
courts  of  the  United  States  having  jurisdiction  shall 
prescribe,  shall  respectively  qualify  by  entering  into 
bond  to  the  United  States  in  such  sum  as  shall  be  fixed 


OFFICEES,    THEIR  DUTIES   AND    COMPENSATIONS      227 

by  such  courts,  not  to  exceed  five  thousand  dollars, 
with  such  sureties  as  shall  be  approved  by  such  courts, 
conditioned  for  the  faithful  performance  of  their  official 
duties. 

b.  Trustees,  before  entering  upon  the  performance 
of  their  official  duties,  and  within  ten  days  after  their 
appointment,  or  within  such  further  time,  not  to  exceed 
five  days,  as  the  court  may  permit,  shall  respectively 
qualify  by  entering  into  bond  to  the  United  States, 
with  such  sureties  as  shall  be  approved  by  the  courts, 
conditioned  for  the  faithful  performance  of  their  official 
duties. 

c.  The  creditors  of  a  bankrupt  estate,  at  their  first 
meeting  after  the  adjudication,  or  after  a  vacancy  has 
occurred  in  the  office  of  trustee,  or  after  an  estate  has 
been  reopened,  or  after  a  composition  has  been  set 
aside  or  a  discharge  revoked,  if  there  is  a  vacancy  in 
the  office  of  trustee,  shall  fix  the  amount  of  the  bond 
of  the  trustee;  they  may  at  any  time  increase  the  amount 
of  the  bond.  If  the  creditors  do  not  fix  the  amount 
of  the  bond  of  the  trustee  as  herein  provided  the  court 
shall  do  so. 

d.  The  court  shall  require  evidence  as  to  the  actual 
value  of  the  property  of  sureties. 

e.  There  shall  be  at  least  two  sureties  upon  each  bond. 

f.  The  actual  value  of  the  property  of  the  sureties, 
over  and  above  their  liabilities  and  exemptions,  on  each 
bond  shall  equal  at  least  the  amount  of  such  bond. 


228  MERCANTILE   CREDITS   AND    COLLECTIONS 

g.  Corporations  organized  for  the  purpose  of  be- 
coming sureties  upon  bonds,  or  authorized  by  law  to 
do  so,  may  be  accepted  as  sureties  upon  the  bonds  of 
referees  and  trustees  whenever  the  courts  are  satisfied 
that  the  rights  of  all  parties  in  interest  will  be  thereby 
amply  protected. 

h.  Bonds  of  referees,  trustees,  and  designated  de- 
positories shall  be  filed  of  record  in  the  office  of  the 
clerk  of  the  court  and  may  be  sued  upon  in  the  name 
of  the  United  States  for  the  use  of  any  person  injured 
by  a  breach  of  their  conditions. 

i.  Trustees  shall  not  be  liable  personally  or  on  their 
bonds,  to  the  United  States,  for  any  penaUties  or  for- 
feitures incurred  by  the  bankrupts  under  this  Act,  of 
whose  estates  they  are  respectively  trustees. 

j.  Joint  trustees  may  give  joint  or  several  bonds. 

k.  If  any  referee  or  trustee  shall  fail  to  give  bond,  as 
herein  provided  and  within  the  time  limited,  he  shall 
be  deemed  to  have  declined  his  appointment,  and  such 
failure  shall  create  a  vacancy  in  his  office. 

1.  Suits  upon  referees'  bonds  shall  not  be  brought  sub- 
sequent to  two  years  after  the  alleged  breach  of  the  bond. 

m.  Suits  upon  trustees'  bonds  shall  not  be  brought 
subsequent  to  two  years  after  the  estate  has  been  closed. 

Duties  of  Clerks : 

Sec.  51. — a.  Clerks  shall  respectively  (1)  account 
for,  as  for  other  fees  received  by  them,  the  clerk's  fee 


OFFICERS,    THEIR   DUTIES   AND    COMPENSATIONS      229 

paid  in  each  case  and  such  other  fees  as  may  be  received 
for  certified  copies  of  records  which  may  be  prepared 
for  persons  other  than  officers;  (2)  collect  the  fees  of 
the  clerk,  referee,  and  trustee  in  each  case  instituted 
before  filing  the  petition,  except  the  petition  of  a  pro- 
posed voluntary  bankrupt  which  is  accompanied  by 
an  affidavit  stating  that  the  petitioner  is  without,  and 
can  not  obtain,  the  money  with  which  to  pay  such  fees; 
(3)  deliver  to  the  referees  upon  application  all  papers 
which  may  be  referred  to  them,  or,  if  the  offices  of  such 
referees  are  not  in  the  same  cities  or  towns  as  the  offices 
of  such  clerks,  transmit  such  papers  by  mail,  and  in 
like  manner  return  papers  which  were  received  from 
such  referees  after  they  have  been  used;  (4)  and  within 
ten  days  after  each  case  has  been  closed  pay  to  the 
referee,  if  the  case  was  referred,  the  fee  collected  for 
him,  and  to  the  trustee  the  fee  collected  for  him  at  the 
time  of  filing  the  petition. 

Compensation  of  Clerks  and  Marshals : 

Sec.  52. — a.  Clerks  shall  respectively  receive  as  full 
compensation  for  their  services  to  each  estate,  a  filing 
fee  of  ten  dollars,  except  when  a  fee  is  not  required  from 
a  voluntary  bankrupt. 

b.  Marshals  shall  respectively  receive  from  the  estate 
where  an  adjudication  in  bankruptcy  is  made,  except 
as  herein  otherwise  provided,  for  the  performance  of 
their  services  in  proceedings  in  bankruptcy,  the  same 


230  MERCANTILE    CREDITS   AND    COLLECTIONS 

fees,  and  account  for  them  in  the  same  way,  as  they  are 
entitled  to  receive  for  the  performance  of  the  same  or 
similar  services  in  other  cases  in  accordance  with  laws 
now  in  force,  or  such  as  may  be  hereafter  enacted  fixing 
the  compensation  of  marshals. 

Duties  of  Attorney-General : 

Sec.  53. — a.  The  Attorney-General  shall  annually 
lay  before  Congress  statistical  tables  showing  for  the 
whole  country,  and  by  States,  the  number  of  cases  dur- 
ing the  year  of  voluntary  and  involuntary  bankruptcy; 
the  amount  of  the  property  of  the  estates;  the  dividends 
paid  and  the  expenses  of  administering  such  estates; 
and  such  other  like  information  as  he  may  deem  im- 
portant. 

Statistics  of  Bankruptcy  Proceedings : 

Sec.  54. — a.  Officers  shall  furnish  in  writing  and 
transmit  by  mail  such  information  as  is  within  their 
knowledge,  and  as  may  be  shown  by  the  records  and 
papers  in  their  possession,  to  the  Attorney-General, 
for  statistical  purposes,  within  ten  days  after  being 
requested  by  him  to  do  so. 


CHAPTER  VI 

CREDITORS 

Meetings  of  Creditors : 

Sec.  55. — a.  The  court  shall  cause  the  first  meeting 
of  the  creditors  of  a  bankrupt  to  be  held,  not  less  than 
ten  nor  more  than  thirty  days  after  the  adjudication, 
at  the  county  seat  of  the  county  in  which  the  bankrupt 
has  had  his  principal  place  of  business,  resided,  or  had 
his  domicile;  or  if  that  place  would  be  manifestly  in- 
convenient as  a  place  of  meeting  for  the  parties  in  in- 
terest, or  if  the  bankrupt  is  one  who  does  not  do  busi- 
ness, reside,  or  have  his  domicile  within  the  United 
States,  the  court  shall  fix  a  place  for  the  meeting  which 
is  the  most  convenient  for  parties  in  interest.  If  such 
meeting  should  by  any  mischance  not  be  held  within 
such  time,  the  court  shall  fix  the  date,  as  soon  as  may 
be  thereafter,  when  it  shall  be  held. 

b.  At  the  first  meeting  of  creditors  the  judge  or  ref- 
eree shall  preside  and,  before  proceeding  with  the  other 
business,  may  allow  or  disallow  the  claims  of  creditors 
there  presented,  and  may  publicly  examine  the  bank- 
rupt or  cause  him  to  be  examined  at  the  instance  of 
any  creditor. 

c.  The  creditors  shall  at  each  meeting  take  such 

231 


232  MERCANTILE    CREDITS   AND    COLLECTIONS 

steps  as  may  be  pertinent  and  necessary  for  the  pro- 
motion of  the  best  interest  of  the  estate  and  the  en- 
forcement of  this  Act. 

d.  A  meeting  of  creditors,  subsequent  to  the  first 
one,  may  be  held  at  any  time  and  place  when  all  of  the 
creditors  who  have  secured  the  allowance  of  their  claims 
sign  a  written  consent  to  hold  a  meeting  at  such  time 
and  place. 

e.  The  court  shall  call  a  meeting  of  creditors  when- 
ever one-fourth  or  more  in  number  of  those  who  have 
proven  their  claims  shall  file  a  written  request  to  that 
effect;  if  such  request  is  signed  by  a  majority  of  claims, 
and  contains  a  request  for  such  meeting  to  be  held  at  a 
designated  place,  the  court  shall  call  such  meeting  at 
such  place  within  thirty  days  after  the  date  of  the  filing 
of  the  request. 

f .  Whenever  the  affairs  of  the  estate  are  ready  to  be 
closed  a  final  meeting  of  creditors  shall  be  ordered. 

Voters  at  Meetings  of  Creditors : 

Sec.  5G. — a.  Creditors  shall  pass  upon  matters  sub- 
mitted to  them  at  their  meetings  by  a  majority  vote 
in  number  and  amount  of  claims  of  all  creditors  whose 
claims  have  been  allowed  and  are  present,  except  as 
herein  otherwise  provided. 

b.  Creditors  holding  claims  which  are  secured  or 
have  priority  shall  not,  in  respect  to  such  claims,  be 
entitled  to  vote  at  creditors'  meetings,  nor  shall  such 


CREDITORS  233 

claims  be  counted  in  computing  either  the  number  of 
creditors  or  the  amount  of  their  claims,  unless  the 
amounts  of  such  claims  exceed  the  value  of  such  se- 
curities or  priorities,  and  then  only  for  such  excess. 

Proof  and  Allowance  of  Claims : 

Sec.  57. — a.  Proof  of  claims  shall  consist  of  a  state- 
ment under  oath,  in  writing,  signed  by  a  creditor  setting 
forth  the  claim,  the  consideration  therefor,  and  whether 
any,  and,  if  so,  what,  securities  are  held  therefor,  and 
whether  any,  and,  if  so  what,  payments  have  been  made 
thereon,  and  that  the  sum  claimed  is  justly  owing  from 
the  bankrupt  to  the  creditor. 

b.  Whenever  a  claim  is  founded  upon  an  instrument 
of  writing,  such  instrument,  unless  lost  or  destroyed, 
shall  be  filed  with  the  proof  of  claim.  If  such  instru- 
ment is  lost  or  destroyed,  a  statement  of  such  fact  and 
of  the  circumstances  of  such  loss  or  destruction  shall 
be  filed  under  oath  with  the  claim.  After  the  claim  is 
allowed  or  disallowed,  such  instrument  may  be  with- 
drawn by  permission  of  the  court,  upon  leaving  a  copy 
thereof  on  file  with  the  claim. 

c.  Claims  after  being  proved  may,  for  the  purpose 
of  allowance,  be  filed  by  the  claimants  in  the  court 
where  the  proceedings  are  pending  or  before  the  referee 
if  the  case  has  been  referred. 

d.  Claims  which  have  been  duly  proved  shall  be 
allowed,  upon  receipt  by  or  upon  presentation  to  the 


234  MERCANTILE   CREDITS   AND   COLLECTIONS 

court,  unless  objection  to  their  allowance  shall  be  made 
by  parties  in  interest,  or  their  consideration  be  con- 
tinued for  cause  by  the  court  upon  its  own  motion. 

e.  Claims  of  secured  creditors  and  those  who  have 
priority  may  be  allowed  to  enable  such  creditors  to 
participate  in  the  proceedings  at  creditors'  meetings 
held  prior  to  the  determination  of  the  value  of  their 
securities  or  priorities,  but  shall  be  allowed  for  such 
sums  only  as  to  the  courts  seem  to  be  owing  over  and 
above  the  value  of  their  securities  or  priorities. 

f.  Objections  to  claims  shall  be  heard  and  determined 
as  soon  as  the  convenience  of  the  court  and  the  best 
interests  of  the  estates  and  the  claimants  will  permit. 

g.  The  claims  of  creditors  who  have  received  pref- 
erences, voidable  under  section  sixty,  subdivision  b, 
or  to  whom  conveyances,  transfers,  assignments,  or  en- 
cumbrances, void  or  voidable  under  section  sixty-seven, 
subdivision  e,  have  been  made  or  given,  shall  not  be 
allowed  unless  such  creditors  shall  surrender  such  pref- 
erences, conveyances,  transfers,  assignments,  or  en- 
cumbrances. 

h.  The  value  of  securities  held  by  secured  creditors 
shall  be  determined  by  converting  the  same  into  money 
according  to  the  terms  of  the  agreement  pursuant  to 
which  such  securities  were  delivered  to  such  creditors 
or  by  such  creditors  and  the  trustee,  by  agreement, 
arbitration,  compromise,  or  htigation,  as  the  court  may 
direct   and  the  amount  of  such  value  shall  be  credited 


CREDITORS  235 

upon  such  claims,  and  a  dividend  shall  be  paid  only 
on  the  unpaid  balance. 

i.  Whenever  a  creditor,  whose  claim  against  a  bank- 
rupt estate  is  secured  by  the  individual  undertaking 
of  any  person,  fails  to  prove  such  claim,  such  person 
may  do  so  in  the  creditor's  name,  and  if  he  discharge 
such  undertaking  in  whole  or  in  part  he  shall  be 
subrogated  to  that  extent  to  the  rights  of  the 
creditor. 

j.  Debts  owing  to  the  United  States,  a  state,  a  county, 
a  district,  or  a  municipality  as  a  penalty  or  forfeiture 
shall  not  be  allowed,  except  for  the  amount  of  the 
pecuniary  loss  sustained  by  the  act,  transaction,  or 
proceeding  out  of  which  the  penalty  or  forfeiture  arose, 
with  reasonable  and  actual  costs  occasioned  thereby 
and  such  interest  as  may  have  accrued  thereon  accord- 
ing to  law. 

k.  Claims  which  have  been  allowed  may  be  recon- 
sidered for  cause  and  reallowed  or  rejected  in  whole  or 
in  part,  according  to  the  equities  of  the  case,  before 
but  not  after  the  estate  has  been  closed. 

1.  Whenever  a  claim  shall  have  been  reconsidered 
and  rejected,  in  whole  or  in  part,  upon  which  a  dividend 
has  been  paid,  the  trustee  may  recover  from  the  creditor 
the  amount  of  the  dividend  received  upon  the  claim 
if  rejected  in  whole,  or  the  proportional  part  thereof 
if  rejected  only  in  part. 

m.  The  claim  of  any  estate  which  is  being  admin- 


236  MERCANTILE   CREDITS   AND   COLLECTIONS 

istered  in  bankruptcy  against  any  like  estate  may  be 
proved  by  the  trustee  and  allowed  by  the  court  in  the 
same  manner  and  upon  like  terms  as  the  claims  of  other 
creditors. 

n.  Claims  shall  not  be  proved  against  a  bankrupt 
estate  subsequent  to  one  year  after  the  adjudication; 
or  if  they  are  liquidated  by  litigation  and  the  final  judg- 
ment therein  is  rendered  within  thirty  days  before  or 
after  the  expiration  of  such  tune,  then  within  sixty  days 
after  the  rendition  of  such  judgment:  Provided,  That  the 
right  of  infants  and  insane  persons  without  guardians, 
without  notice  of  the  proceedings,  may  continue  six 
months  longer. 

Notice  to  Creditors : 

Sec.  58. — a.  Creditors  shall  have  at  least  ten  days' 
notice  by  mail,  to  their  respective  addresses  as  they 
appear  in  the  list  of  creditors  of  the  bankrupt,  or  as 
afterwards  filed  with  the  papers  in  the  case  of  the  credi- 
tors, unless  they  waive  notice  in  writing  of  (1)  all  ex- 
aminations of  the  bankrupt;  (2)  all  hearings  upon  appli- 
cations for  the  confirmation  of  compositions;  (3)  all 
meetings  of  creditors;  (4)  all  proposed  sales  of  property; 

(5)  the  declaration  and  time  of  payment  of  dividends; 

(6)  the  filing  of  the  final  accounts  of  the  trustees  and 
the  time  when  and  the  place  where  they  will  be  examined 
and  passed  upon;  (7)  the  proposed  compromise  of  any 
controversy,  and  (8)  the  proposed  dismissal  of  the  pro- 


CREDITORS  237 

ceedings,  and  (9)  there  shall  be  thirty  days'  notice  of 
all  applications  for  the  discharge  of  bankrupts. 

b.  Notice  to  creditors  of  the  first  meeting  shall  be 
pubhshed  at  least  once  and  may  be  published  such 
number  of  additional  times  as  the  court  may  direct; 
the  last  publication  shall  be  at  least  one  week  prior  to 
the  date  fixed  for  the  meeting.  Other  notices  may  be 
pubhshed  as  the  court  shall  direct. 

c.  All  notices  shall  be  given  by  the  referee  unless 
otherwise  ordered  by  the  judge. 

Who  May  File  and  Dismiss  Petitions : 

Sec.  59. — a.  Any  qualified  person  may  file  a  petition 
to  be  adjudged  a  voluntary  bankrupt. 

b.  Three  or  more  creditors  who  have  provable  claims 
against  any  person  which  amount  in  the  aggregate,  in 
excess  of  the  value  of  securities  held  by  them,  if  any, 
to  five  hundred  dollars  or  over;  or  if  all  of  the  creditors 
of  such  person  are  less  than  twelve  in  number,  the 
one  of  such  creditors  whose  claim  equals  such  amount 
may  file  a  petition  to  have  him  adjudged  a  bankrupt. 

c.  Petitions  shall  be  filed  in  duplicate,  one  copy  for 
the  clerk  and  one  for  service  on  the  bankrupt. 

d.  If  it  be  averred  in  the  petition  that  the  creditors 
of  the  bankrupt  are  less  than  twelve  in  number,  and 
less  than  three  creditors  have  joined  as  petitioners 
therein,  and  the  answer  avers  the  existence  of  a  large 
number  of  creditors,  there  shall  be  filed  with  the  an- 


238  MERCANTILE   CREDITS   AND    COLLECTIONS 

swers  a  list  under  oath  of  all  the  creditors,  with  their 
addresses,  and  thereupon  the  court  shall  cause  all  such 
creditors  to  be  notified  of  the  pendency  of  such  petition 
and  shall  delay  the  hearing  upon  such  petition  for  a 
reasonable  time,  to  the  end  that  parties  in  interest  shall 
have  an  opportunity  to  be  heard;  if  upon  such  hearing 
it  shall  appear  that  a  sufficient  number  have  joined  in 
such  petition,  or  if  prior  to  or  during  such  hearing  a 
sufficient  number  shall  join  therein,  the  case  may  be 
proceeded  with,  but  otherwise  it  shall  be  dismissed. 

e.  In  computing  the  number  of  creditors  of  a  bank- 
rupt for  the  purpose  of  determining  how  many  creditors 
must  join  in  the  petition,  such  creditors  as  were  employed 
by  him  at  the  time  of  the  fifing  of  the  petition  or  are  re- 
lated to  him  by  consanguinity,  or  affinity  within  the 
third  degree,  as  determined  by  the  common  law,  and 
have  not  joined  in  the  petition,  shall  not  be  counted. 

f.  Creditors  other  than  original  petitioners  may  at 
any  time  enter  their  appearance  and  join  in  the  petition, 
or  file  an  answer  and  be  heard  in  opposition  to  the 
prayer  of  the  petition. 

g.  A  voluntary  or  involuntary  petition  shall  not  be 
dismissed  by  the  petitioner  or  petitioners  or  for  want 
of  prosecution  or  by  consent  of  parties  until  after  notice 
to  the  creditors,  and  to  that  end  the  court  shall,  before 
entertaining  an  application  for  dismissal,  require  the 
bankrupt  to  file  a  list,  under  oath,  of  all  his  creditors, 
with  their  addresses,  and  shall  cause  notice  to  be  sent 


CREDITORS  239 

to  all  such  creditors  of  the  pendency  of  such  appli- 
cation and  shall  delay  the  hearing  thereon  for  a  reason- 
able time  to  allow  all  creditors  and  parties  in  interest 
opportunity  to  be  heard. 

Preferred  Creditors: 

Sec.  60. — a.  A  person  shall  be  deemed  to  have  given 
a  preference  if,  being  insolvent,  he  has,  within  four 
months  before  the  filing  of  the  petition,  or  after  the 
filing  of  the  petition  and  before  the  adjudication,  pro- 
cured or  suffered  a  judgment  to  be  entered  against  him- 
self in  favor  of  any  person,  or  made  a  transfer  of  any 
of  his  property,  and  the  effect  of  the  enforcement  of 
such  judgment  or  transfer  will  be  to  enable  any  one  of 
his  creditors  to  obtain  a  greater  percentage  of  his  debt 
than  any  other  of  such  creditors  of  the  same  class. 
Where  the  preference  consists  in  a  transfer,  such  period 
of  four  months  shall  not  expire  until  four  months  after 
the  date  of  the  recording  or  registering  of  the  transfer,  if 
by  law  such  recording  or  registering  is  required. 

b.  If  a  bankrupt  shall  have  procured  or  suffered  a 
judgment  to  be  entered  against  him  in  favor  of  any  per- 
son or  have  made  a  transfer  to  any  of  his  property,  and 
if,  at  the  time  of  the  transfer,  or  of  the  entry  of  the  judg- 
ment, or  of  the  recording  or  registering  of  the  transfer 
if  by  law  recording  or  registering  thereof  is  required  and 
being  within  four  months  before  the  filing  of  the  peti- 
tion in  bankruptcy  or  after  the  filing  thereof  and  before 
the  adjudication  the  bankrupt  be  insolvent  and  the 


240  MERCANTILE   CREDITS   AND   COLLECTIONS 

judgment  or  transfer  then  operate  as  a  preference,  and 
the  person  receiving  it  or  to  be  benefited  thereby,  or 
his  agent  acting  therein  shall  then  have  reasonable 
cause  to  believe  that  the  enforcement  of  such  judgment 
or  transfer  would  effect  a  preference,  it  shall  be  voidable 
by  the  trustee  and  he  may  recover  the  property  or  its 
value  from  such  person.  And  for  the  purpose  of  such 
recovery,  any  court  of  bankruptcy,  as  hereinbefore 
defined,  and  any  State  court  which  would  have  had 
jurisdiction  if  bankruptcy  had  not  intervened,  shall 
have  concurrent  jurisdiction. 

c.  If  a  creditor  has  been  preferred,  and  afterwards 
in  good  faith  gives  the  debtor  further  credit  without 
security  of  any  kind  for  property  which  becomes  a  part 
of  the  debtor's  estates,  the  amount  of  such  new  credit 
remaining  unpaid  at  the  time  of  the  adjudication  in 
bankruptcy  may  be  set  off  against  the  amount  which 
would  otherwise  be  recoverable  from  him. 

d.  If  a  debtor  shall,  directly  or  indirectly,  in  contem- 
plation of  the  fihng  of  a  petition  by  or  against  him,  pay 
money  or  transfer  property  to  an  attorney  and  counselor 
at  law,  solicitor  in  equity,  or  proctor  in  admiralty  for 
services  to  be  rendered,  the  transaction  shall  be  re- 
examined by  the  court  on  petition  of  the  trustee  or  any 
creditor  and  shall  only  be  held  valid  to  the  extent  of  a 
reasonable  amount  to  be  determined  by  the  court,  and 
the  excess  may  be  recovered  by  the  trustee  for  the  bene- 
fit of  the  estate. 


CHAPTER  VII 

ESTATES 

Depositories  for  Money : 

Sec.  61. — a.  Courts  of  bankruptcy  shall  designate, 
by  order,  banking  institutions  as  depositories  for  the 
money  of  bankrupt  estates,  as  convenient  as  may  be 
to  the  residences  of  trustees,  and  shall  require  bonds 
to  the  United  States,  subject  to  their  approval,  to  be 
given  by  such  banking  institutions,  and  may  from  time 
to  time  as  occasion  may  require,  by  like  order  increase 
the  number  of  depositories  or  the  amount  of  any  bond 
or  change  such  depositories. 

Expenses  of  Administering  Estates : 

Sec.  62. — a.  The  actual  and  necessary  expenses 
incurred  by  officers  in  the  administration  of  estates 
shall,  except  where  other  provisions  are  made  for  their 
payment,  be  reported  in  detail,  under  oath,  and  ex- 
amined and  approved  or  disapproved  by  the  court. 
If  approved,  they  shall  be  paid  or  allowed  out  of  the 
estates  in  which  they  were  incurred. 

Debts  which  May  be  Proved: 

Sec.  63. — a.  Debts  of  the  bankrupt  may  be  proved 
and  allowed  against  his  estate  which  are  (1)  a  fixed  lia- 

241 


242  MERCANTILE   CREDITS   AND    COLLECTIONS 

bility,  as  evidenced  by  a  judgment  or  an  instrument  in 
writing,  absolutely  owing  at  the  time  of  the  fihng  of 
the  petition  against  him,  whether  then  payable  or  not, 
with  any  interest  thereon  which  would  have  been  re- 
coverable at  that  date  or  with  a  rebate  of  interest  upon 
such  as  were  not  then  payable  and  did  not  bear  in- 
terest; (2)  due  as  costs  taxable  against  an  involuntary 
bankrupt  who  was  at  the  time  of  the  filing  of  the  peti- 
tion against  him  plaintiff  in  a  cause  of  action  which 
would  pass  to  the  trustee  and  which  the  trustee  declines 
to  prosecute  after  notice;  (3)  founded  upon  a  claim  for 
taxable  costs  incurred  in  good  faith  by  a  creditor  before 
the  filing  of  the  petition  in  an  action  to  recover  a  prov- 
able debt;  (4)  founded  upon  an  open  account,  or  upon 
a  contract  express  or  implied;  and  (5)  founded  upon 
provable  debts  reduced  to  judgments  after  the  fihng 
of  the  petition  and  before  the  consideration  of  the  bank- 
rupt's application  for  a  discharge,  less  costs  incurred 
and  interests  accrued  after  the  filing  of  the  petition  and 
up  to  the  time  of  the  entry  of  such  judgments. 

b.  Unliquidated  claims  against  the  bankrupt  may, 
pursuant  to  application  to  the  court,  be  liquidated  in 
such  manner  as  it  shall  direct,  and  may  thereafter  be 
proved  and  allowed  against  his  estate. 

Debts  Which  have  Priority: 

Sec.  64. — a.  The  court  shall  order  the  trustee  to  pay 
all  taxes  legally  due  and  owing  by  the  bankrupt  to  the 


ESTATES  243 

United  States,  State,  county,  district,  or  municipality 
in  advance  of  the  payment  of  dividends  to  creditors, 
and  upon  filing  the  receipts  of  the  proper  public  officers 
for  such  payment  he  shall  be  credited  with  the  amount 
thereof,  and  in  case  any  question  arises  as  to  the  amount 
or  legahty  of  any  such  tax  the  same  shall  be  heard  and 
determined  by  the  court. 

b.  The  debts  to  have  priority,  except  as  herein  pro- 
vided, and  to  be  paid  in  full  out  of  bankrupt  estates, 
and  the  order  of  payment  shall  be  (1)  the  actual  and 
necessary  cost  of  preserving  the  estate  subsequent  to 
filing  the  petition;  (2)  the  filing  fees  paid  by  creditors 
in  involuntary  cases,  and,  where  property  of  the  bank- 
rupt, transferred  or  concealed  by  him  either  before  or 
after  the  filing  of  the  petition,  shall  have  been  recovered 
for  the  benefit  of  the  estate  of  the  bankrupt  by  the 
efforts  and  at  the  expense  of  one  or  more  creditors,  the 
reasonable  expenses  of  such  recovery;  (3)  the  cost  of 
administration,  including  the  fees  and  mileage  payable 
to  witnesses  as  now  or  hereafter  provided  by  the  laws 
of  the  United  States,  and  one  reasonable  attorney's 
fee,  for  the  professional  services  actually  rendered, 
irrespective  of  the  number  of  attorneys  employed,  to 
the  petitioning  creditors  in  involuntary  cases,  to  the 
bankrupt  in  involuntary  cases  while  performing  the 
duties  herein  prescribed,  and  to  the  bankrupt  in  vol- 
untary cases,  as  the  court  may  allow;  (4)  wages  due 
to  workmen,  clerks,  traveling  or  city  salesmen,  or  serv- 


244  MERCANTILE   CREDITS   AND   COLLECTIONS 

ants  which  have  been  earned  within  three  months 
before  the  date  of  the  commencement  of  proceedings, 
not  to  exceed  three  hundred  dollars  to  each  claimant; 
and  (5)  debts  owing  to  any  person  who  by  the  laws  of 
the  States  or  the  United  States  is  entitled  to  priority. 
c.  In  the  event  of  the  confirmation  being  set  aside, 
or  a  discharge  revoked,  the  property  acquired  by  the 
bankrupt  in  addition  to  his  estate  at  the  time  the  com- 
position was  confirmed  or  the  adjudication  was  made 
shall  be  applied  to  the  payment  in  full  of  the  claims  of 
creditors  for  property  sold  to  him  on  credit,  in  good 
faith,  while  such  composition  or  discharge  was  in  force, 
and  the  residue,  if  any,  shall  be  applied  to  the  payment 
of  the  debts  which  were  owing  at  the  time  of  the  adjudi- 
cation. 

Declaration  and  Payment  of  Dividends : 

Sec.  65. — a.  Dividends  of  an  equal  per  centum  shall 
be  declared  and  paid  on  all  allowed  claims,  except  such 
as  have  priority  or  are  secured. 

b.  The  first  dividend  shall  be  declared  within  thirty 
days  after  the  adjudication,  if  the  money  of  the  estate 
in  excess  of  the  amount  necessary  to  pay  the  debts 
which  have  priority  and  such  claims  as  have  not  been, 
but  probably  will  be,  allowed  equals  five  per  centum 
or  more  of  such  allowed  claims.  Dividends  subsequent 
to  the  first  shall  be  declared  upon  like  terms  as  the  first 
and  as  often  as  the  amount  shall  equal  ten  per  centum 


ESTATES  245 

or  more  and  upon  closing  the  estate.  Dividends  may 
be  declared  oftener  and  in  smaller  proportions  if  the 
judge  shall  so  order;  Provided,  That  the  first  dividend 
shall  not  include  more  than  fifty  per  centum  of  the 
money  of  the  estate  in  excess  of  the  amount  necessary 
to  pay  the  debts  which  have  priority  and  such  claims 
as  probably  will  be  allowed;  And  provided  further, 
That  the  final  dividend  shall  not  be  declared  within 
three  months  after  the  first  dividend  shall  be  declared. 

c.  The  rights  of  creditors  who  have  received  divi- 
dends, or  in  whose  favor  final  dividends  have  been 
declared,  shall  not  be  affected  by  the  proof  and  allow- 
ance of  claims  subsequent  to  the  date  of  such  payment 
or  declarations  of  dividends;  but  the  creditors  proving 
and  securing  the  allowance  of  such  claims  shall  be  paid 
dividends  equal  in  amount  to  those  already  received  by 
the  other  creditors  if  the  estate  equals  so  much  before 
such  other  creditors  are  paid  any  further  dividends. 

d.  Whenever  a  person  shall  have  been  adjudged  a 
bankrupt  by  a  court  without  the  United  States  and 
also  by  a  court  of  bankruptcy,  creditors  residing  within 
the  United  States  shall  first  be  paid  a  dividend  equal 
to  that  received  in  the  court  without  the  United  States 
by  other  creditors  before  creditors  who  have  received  a 
dividend  in  such  courts  shall  be  paid  any  amounts. 

e.  A  claimant  shall  not  be  entitled  to  collect  from  a 
bankrupt  estate  any  greater  amount  than  shall  accrue 
pursuant  to  the  provisions  of  this  Act. 


246  MERCANTILE   CREDITS   AND    COLLECTIONS 

Unclaimed  Dividends : 

Sec.  G6. — a.  Dividends  which  remain  unclaimed  for 
six  months  after  the  final  dividend  has  been  declared 
shall  be  paid  by  the  trustee  into  court. 

b.  Dividends  remaining  unclaimed  for  one  year  shall, 
under  the  direction  of  the  court,  be  distributed  to  the 
creditors  whose  claims  have  been  allowed  but  not  paid 
in  full,  and  after  such  claims  have  been  paid  in  full  the 
balance  shall  be  paid  to  the  bankrupt:  Provided,  That 
in  case  unclaimed  dividends  belong  to  minors  such 
minors  may  have  one  year  after  arriving  at  majority 
to  claim  such  dividends. 

Liens : 

Sec.  67. — a.  Claims  which  for  want  of  record  or  for 
other  reasons  would  not  have  been  valid  liens  as  against 
the  claims  of  the  creditors  of  the  bankrupt  shall  not 
be  liens  against  his  estate. 

b.  Whenever  a  creditor  is  prevented  from  enforcing 
his  rights  as  against  a  Hen  created,  or  attempted  to  be 
created,  by  his  debtor,  who  afterwards  becomes  a  bank- 
rupt, the  trustee  of  the  estate  of  such  bankrupt  shall 
be  subrogated  to  and  may  enforce  such  rights  of  such 
creditor  for  the  benefit  of  the  estate. 

c.  A  lien  created  by  or  obtained  in  or  pursuant  to  any 
suit  or  proceeding  at  law  or  in  equity,  including  an 
attachment  upon  mesne  process  or  a  judgment  by  con- 
fession, which  was  begun  against  a  person  within  four 


ESTATES  247 

months  before  the  fiUng  of  a  petition  in  bankruptcy 
by  or  against  such  person  shall  be  dissolved  by  the 
adjudication  of  such  person  to  be  a  bankrupt  if  (1)  it 
appears  that  said  lien  was  obtained  and  permitted 
while  the  defendant  was  insolvent  and  that  its  existence 
and  enforcement  will  work  a  preference,  or  (2)  the  party 
or  parties  to  be  benefited  thereby  had  reasonable  cause 
to  believe  the  defendant  was  insolvent  and  in  contem- 
plation of  bankruptcy,  or  (3)  that  such  lien  was  sought 
and  permitted  in  fraud  of  the  provisions  of  this  Act; 
or  if  the  dissolution  of  such  lien  would  militate  against 
the  best  interests  of  the  estate  of  such  person  the  same 
shall  not  be  dissolved,  but  the  trustee  of  the  estate  of 
such  person,  for  the  benefit  of  the  estate,  shall  be  sub- 
rogated to  the  rights  of  the  holder  of  such  lien  and  em- 
powered to  perfect  and  enforce  the  same  in  his  name 
as  trustee  with  like  force  and  effect  as  such  holder 
might  have  done  had  not  bankruptcy  proceedings  in- 
tervened. 

d.  Liens  given  or  accepted  in  good  faith  and  not  in 
contemplation  of  or  in  fraud  upon  this  Act  and  for  a 
present  consideration  which  have  been  recorded  accord- 
ing to  law,  if  record  thereof  was  necessary  in  order  to 
impart  notice,  shall,  to  the  extent  of  such  present  con- 
sideration only,  not  be  affected  by  this  Act. 

e.  That  all  conveyances,  transfers,  assignments,  or 
encumbrances  of  his  property,  or  any  part  thereof,  made 
or  given  by  a  person  adjudged  a  bankrupt  under  the 


248  MERCANTILE   CREDITS   AND   COLLECTIONS 

provisions  of  this  Act  subsequent  to  the  passage  of  this 
Act  and  within  four  months  prior  to  the  fiUng  of  the 
petition,  with  the  intent  and  purpose  on  his  part  to 
hinder,  delay,  or  defraud  his  creditors,  or  any  of  them, 
shall  be  null  and  void  as  against  the  creditors  of  such 
debtor,  except  as  to  purchasers  in  good  faith  and  for 
a  present  fair  consideration;  and  all  property  of  the 
debtor  conveyed,  transferred,  assigned,  or  encumbered 
as  aforesaid  shall,  if  he  be  adjudged  a  bankrupt,  and 
the  same  is  not  exempt  from  execution  and  liability  for 
debts  by  the  law  of  his  domicile,  be  and  remain  a  part 
of  the  assets  and  estate  of  the  bankrupt  and  shall  pass 
to  his  said  trustee,  whose  duty  it  shall  be  to  recover 
and  reclaim  the  same  by  legal  proceedings  or  other- 
wise for  the  benefit  of  the  creditors.  And  all  convey- 
ances, transfers,  or  encumbrances  of  his  property  made 
by  a  debtor  at  any  time  within  four  months  prior  to 
the  filing  of  the  petition  against  him,  and  while  insol- 
vent, which  are  held  null  and  void  as  against  the  credit- 
ors of  such  debtor  by  the  laws  of  the  State,  Territory, 
or  District  in  which  such  property  is  situate,  shall  be 
deemed  null  and  void  under  this  Act  against  the  credit- 
ors of  such  debtor  if  he  be  adjudged  a  bankrupt,  and 
such  property  shall  pass  to  the  assignee  and  be  by  hira 
reclaimed  and  recovered  for  the  benefit  of  the  creditors 
of  the  bankrupt.  For  the  purpose  of  such  recovery 
any  court  of  bankruptcy  as  hereinbefore  defined,  and 
any  State  court  which  would  have  had  jurisdiction  if 


ESTATES  249 

bankruptcy  had  not  intervened,  shall  have  concurrent 
jurisdiction. 

f.  That  all  levies,  judgments,  attachments,  or  other 
hens,  obtained  through  legal  proceedings  against  a 
person  who  is  insolvent,  at  any  time  within  four  months 
prior  to  the  filing  of  a  petition  in  bankruptcy  against 
him,  shall  be  deemed  null  and  void  in  case  he  is  ad- 
judged a  bankrupt,  and  the  property  affected  by  the 
levy,  judgment,  attachment,  or  other  lien  shall  be 
deemed  wholly  discharged  and  released  from  the  same, 
and  shall  pass  to  the  trustee  as  a  part  of  the  estate  of  the 
bankrupt,  unless  the  court  shall,  on  due  notice,  order 
that  the  right  under  such  levy,  judgment,  attachment, 
or  other  lien  shall  be  preserved  for  the  benefit  of  the 
estate;  and  thereupon  the  same  may  pass  to  and  shall 
be  preserved  by  the  trustee  for  the  benefit  of  the  estate 
as  aforesaid.  And  the  court  may  order  such  convey- 
ance as  shall  be  necessary  to  carry  the  purposes  of  this 
section  into  effect :  Provided,  That  nothing  herein  con- 
tained shall  have  the  effect  to  destroy  or  impair  the  title 
obtained  by  such  levy,  judgment,  attachment  or  other 
lien,  of  a  bona  fide  purchaser  for  value  who  shall  have 
acquired  the  same  without  notice  or  reasonable  cause  for 
inquiry. 

Set-Ofifs  and  Counterclaims : 

Sec.  68. — a.  In  all  cases  of  mutual  debts  or  mutual 
credits  between  the  estates  of  a  bankrupt  and  a  creditor 


250  MERCANTILE   CREDITS   AND    COLLECTIONS 

the  account  shall  be  stated  and  one  debt  shall  be  set 
off  against  the  other,  and  the  balance  only  shall  be 
allowed  or  paid. 

b.  A  set-off  or  counterclaim  shall  not  be  allowed  in 
favor  of  any  debtor  of  the  bankrupt  which  (1)  is  not 
provable  against  the  estate;  or  (2)  was  purchased  by 
or  transferred  to  him  after  the  filing  of  the  petition,  or 
within  four  months  before  such  filing,  with  a  view  to 
such  use  and  with  knowledge  or  notice  that  such  bank- 
rupt was  insolvent,  or  had  committed  an  act  of  bank- 
ruptcy. 

Possession  of  Property : 

Sec.  69. — a.  A  judge  may,  upon  satisfactory  proof, 
by  affidavit,  that  a  bankrupt  against  whom  an  involun- 
tary petition  has  been  filed  and  is  pending  has  com- 
mitted an  act  of  bankruptcy,  or  has  neglected  or  is 
neglecting,  or  is  about  to  so  neglect  his  property  that  it 
has  thereby  deteriorated  or  is  thereby  deteriorating 
or  is  about  thereby  to  deteriorate  in  value,  issue  a  war- 
rant to  the  marshal  to  seize  and  hold  it  subject  to 
further  orders.  Before  such  warrant  is  issued  the  peti- 
tioners applying  therefor  shall  enter  into  a  bond  in  such 
an  amount  as  the  judge  shall  fix,  with  such  sureties  as 
he  shall  approve,  conditioned  to  indemnify  such  bank- 
rupt for  such  damages  as  he  shall  sustain  in  the  event 
such  seizure  shall  prove  to  have  been  wrongfully  ob- 
tained. Such  property  shall  be  released,  if  such  bankrupt 


ESTATES  251 

shall  give  bond  in  a  sum  which  shall  be  fixed  by  the  judge, 
with  such  sureties  as  he  shall  approve,  conditioned  to 
turn  over  such  property,  or  pay  the  value  thereof  in 
money  to  the  trustee,  in  the  event  he  is  adjudged  a 
bankrupt  pursuant  to  such  petition. 

Title  to  Property : 

Sec.  70. — a.  The  trustee  of  the  estate  of  a  bankrupt, 
upon  his  appointment  and  qualification,  and  his  suc- 
cessor or  successors,  if  he  shall  have  one  or  more,  upon 
his  or  their  appointment  and  qualification,  shall  in 
turn  be  vested  by  operation  of  law  with  the  title  of  the 
bankrupt,  as  of  the  date  he  was  adjudged  a  bankrupt, 
except  in  so  far  as  it  is  to  property  which  is  exempt,  to 
all  (1)  documents  relating  to  his  property;  (2)  interests 
in  patents,  patent  rights,  copyrights,  and  trade-marks; 
(3)  powers  which  he  might  have  exercised  for  his  own 
benefit,  but  not  those  which  he  might  have  exercised 
for  some  other  person;  (4)  property  transferred  by  him 
in  fraud  of  his  creditors;  (5)  property  which  prior  to 
the  filing  of  the  petition  he  could  by  any  means  have 
transferred  or  which  might  have  been  levied  upon  and 
sold  under  judicial  process  against  him:  Provided, 
That  when  any  bankrupt  shall  have  any  insurance 
policy  which  has  a  cash  surrender  value  payable  to 
himself,  his  estate  or  personal  representatives,  he  may, 
within  thirty  days  after  the  cash  surrender  value  has 
been  ascertained  and  stated  to  the  trustee  by  the  com- 


252  MERCANTILE   CREDITS   AND    COLLECTIONS 

pany  issuing  the  same,  pay  or  secure  to  the  trustee  the 
sum  so  ascertained  and  stated,  and  continue  to  hold, 
own,  and  carry  such  pohcy  free  from  the  claims  of  the 
creditors  participating  in  the  distribution  of  his  estate 
under  the  bankruptcy  proceedings,  otherwise  the  pohcy 
shall  pass  to  the  trustee  as  assets;  and  (6)  rights  of 
action  arising  upon  contracts  or  from  the  unlawful 
taking  or  detention  of  or  injury  to,  his  property. 

b.  All  real  and  personal  property  belonging  to  bank- 
rupt estates  shall  be  appraised  by  three  disinter- 
ested appraisers;  they  shall  be  appointed  by,  and  re- 
port to,  the  court.  Real  and  personal  property  shall, 
when  practicable,  be  sold  subject  to  the  approval  of 
the  court;  it  shall  not  be  sold  otherwise  than  subject 
to  the  approval  of  the  court  for  less  than  seventy-five 
per  centum  of  its  appraised  value. 

c.  The  title  to  property  of  a  bankrupt  estate  which 
has  been  sold,  as  herein  provided,  shall  be  conveyed 
to  the  purchaser  by  the  trustee. 

d.  Whenever  a  composition  shall  be  set  aside,  or  dis- 
charge revoked,  the  trustee  shall,  upon  his  appointment 
and  qualification,  be  vested  as  herein  provided  with  the 
title  to  all  of  the  property  of  the  bankrupt  as  of  the 
date  of  the  final  decree  setting  aside  the  composition 
or  revoking  the  discharge. 

e.  The  trustee  may  avoid  any  transfer  by  the  bank- 
rupt of  his  property  which  any  creditor  of  such  bank- 
rupt might  have  avoided,  and  may  recover  the  property 


ESTATES  253 

SO  transferred,  or  its  value,  from  the  person  to  whom 
it  was  transferred,  unless  he  was  a  bona  fide  holder  for 
value  prior  to  the  date  of  the  adjudication.  Such  prop- 
erty may  be  recovered  or  its  value  collected  from  who- 
ever may  have  received  it,  except  a  bona  fide  holder 
for  value.  For  the  purpose  of  such  recovery  any  court 
of  bankruptcy,  as  hereinbefore  defined,  and  any  State 
court  which  would  have  had  jurisdiction  if  bankruptcy 
had  not  intervened,  shall  have  concurrent  jurisdiction. 

f.  Upon  the  confirmation  of  a  composition  offered 
by  a  bankrupt,  the  title  to  his  property  shall  thereupon 
revest  in  him. 

Sec.  71.  That  the  clerks  of  the  several  districts  of 
the  United  States  shall  prepare  and  keep  in  their  re- 
spective offices  complete  and  convenient  indexes  of 
all  petitions  and  discharges  in  bankruptcy  heretofore 
or  hereafter  filed  in  the  said  courts,  and  shall,  when 
requested  so  to  do,  issue  certificates  of  search  certifying 
as  to  whether  or  not  any  such  petitions  or  discharges 
have  been  filed;  and  said  clerks  shall  be  entitled  to 
receive  for  such  certificates  the  same  fees  as  now  allowed 
by  law  for  certificates  as  to  judgments  in  said  courts: 
Provided,  That  said  bankruptcy  indexes  and  dockets 
shall  at  all  times  be  open  to  inspection  and  examination 
by  all  persons  or  corporations  without  any  fee  or  charge 
therefor. 

Sec.  72.  That  neither  the  referee,  receiver,  marshal, 
nor  trustee  shall  in  any  form  or  guise  receive,  nor  shall 


254  MERCANTILE    CREDITS    AND    COLLECTIONS 

the  court  allow  them,  any  other  or  further  compensation 
for  his  services  than  expressly  authorized  and  pre- 
scribed in  this  act. 

The  Time  When  This  Act  Shall  go  into  Effect: 

a.  This  Act  shall  go  into  full  force  and  effect  upon 
its  passage:  Provided,  however,  That  no  petition  for 
voluntary  bankruptcy  shall  be  filed  within  one  month 
of  the  passage  thereof,  and  no  petition  for  involuntary 
bankruptcy  shall  be  filed  within  four  months  of  the 
passage  thereof. 

b.  Proceedings  commenced  under  state  insolvency 
laws  before  the  passage  of  this  Act  shall  not  be  affected 
by  it. 

Sec.  14  of  the  amendatory  act  of  1910  provides  as 
follows:  "That  the  provisions  of  this  amendatory  act 
shall  not  apply  to  bankruptcy  cases  pending  when  this 
act  takes  effect,  but  such  cases  shall  be  adjudicated 
and  disposed  of  conformably  to  the  provisions  of  said 
act  approved  July  first,  eighteen  hundred  and  ninety- 
eight,  as  amended  by  said  act  approved  February  fifth, 
nineteen  hundred  and  three  and  as  further  amended  by 
said  act  approved  June  fifteenth,  nineteen  hundred 
and  six." 


APPENDIX 

REQUIREMENTS  OF  EACH   STATE 

AS  TO  CONDITIONAL  SALES  CONTRACTS 

Alabama : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  witnesses, 
acknowledgment  or  proof  are  required,  but  must  be 
recorded  as  against  third  persons,  unless  the  amount  in- 
volved is  less  than  $200.00  and  the  county  where  the 
record  is  to  be  made  has  more  than  80,000  inhabitants 
(for  instance,  Jefferson,  Mobile  and  Montgomery 
Counties),  where  the  contracts  need  not  be  recorded 
or  filed.  It  is  necessary  to  record  all  contracts  covering 
railroad  equipment. 

Arizona : 

Contracts  must  be  in  writing,  signed  by  both  parties, 
but  witnesses  are  unnecessary.  Contracts  must  be 
filed  to  be  good  as  against  third  parties,  and  if  the 
original  is  filed  no  acknowledgment  is  necessary,  but  if 
the  copy  is  filed,  the  original  must  be  acknowledged  by 
the  buyer.  Ail  sales  of  railroad  equipment  under  con- 
ditional sales  must  be  signed,  recorded  and  acknowl- 
edged. 

255 


256  APPENDIX 

Arkansas : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  it  is  not  necessary  that  they  be  signed  by  the  seller. 
No  acknowledgment  or  witnesses  are  required,  and  it 
need  not  be  filed  or  recorded  unless  the  property  be- 
comes irremovably  attached  to  real  estate.  All  con- 
tracts covering  railroad  equipment  must  be  signed  and 
acknowledged  by  the  buyer  and  recorded. 

California : 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  witnesses, 
acknowledgment  or  proof  are  required.  Neither  is  it 
necessary  to  file  or  record  the  contract  to  hold  title 
as  against  third  persons. 

Colorado : 

It  is  the  practice  in  this  state  to  use  chattel  mortgages 
entirely  as  the  only  safe  method  of  preserving  security 
to  the  seller  as  against  the  rights  of  third  parties.  The 
chattel  mortgage  used  in  Colorado  in  proper  form,  duly 
signed,  acknowledged  and  recorded,  eliminates  all 
questions.  Railroad  equipment  may  be  sold  on  a  con- 
ditional sales  contract,  if  in  writing,  acknowledged 
by  the  buyer  and  recorded  or  filed  and  is  good  as  against 
third  persons. 

Connecticut: 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  it  is  not  necessary  for  the  seller  to  sign.    Witnesses 


APPENDIX  257 

are  not  required,  but  the  contract  must  be  acknowledged 
and  recorded  to  preserve  rights  as  against  third  persons. 
Railroad  equipment  may  be  sold  on  a  conditional  sales 
contract  if  signed  and  acknowledged  by  all  parties  and 
recorded. 

Delaware : 

Contracts  should  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  Witnesses,  ac- 
knowledgments or  other  proof  not  required,  neither  is 
it  necessary  to  record  or  file  to  protect  the  seller  against 
all  parties,  with  the  possible  exception  of  a  landlord's 
lien  for  the  rent  of  the  premises  where  the  property 
sold  is  located.  Sales  of  railroad  equipment  may  be  on  a 
contract  if  acknowledged  and  must  be  recorded. 

District  of  Columbia: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  not  necessary  to  be  signed  by  the  seller.  Witnesses 
are  unnecessary.  If  purchase  price  is  over  $100.00  con- 
tract must  be  acknowledged  by  the  buyer  and  recorded. 
If  the  amount  is  less  than  $100.00  contract  is  good  as 
against  all  persons,  unacknowledged  and  unrecorded, 
excepting  possibly  a  lien  of  the  landlord  for  rent  where 
the  property  is  located.  There  is  no  special  statute  on 
railroad  equipment. 

Florida : 

Contracts  should  be  in  writing,  signed  by  the  buyer. 
For  two  years  following  date  of  sale  it  is  not  necessary 


258  APPENDIX 

to  record  to  protect  the  seller  against  all  persons,  ex- 
cepting a  landlord's  lien  for  rent  of  the  premises  where 
the  property  is  located.  After  two  years  from  date  of 
sale  has  elapsed  the  seller  must  sign  the  contract  before 
two  subscribing  witnesses,  acknowledge  it  and  record 
it.  The  two  year  limit  does  not  apply  to  sales  of  rail- 
road equipment,  in  which  case  the  contract  should  be 
signed  by  all  parties  and  recorded  to  hold  title  as 
against  third  persons. 

Georgia : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  They  must  be 
acknowledged  by  the  buyer  or  have  a  single  witness 
to  the  buyer's  signature,  who  can  later  prove  the  con- 
tract by  oath,  so  that  it  may  be  recorded.  All  con- 
tracts should  be  witnessed  and  the  salesman  may  act 
as  the  witness,  unless  he  signs  the  contract  on  behalf 
of  the  seller,  in  which  case  an  independent,  disin- 
terested witness  should  be  procured.  Contracts  must 
be  recorded.  Sales  of  railroad  equipment  should  be 
on  contract,  signed  by  all  parties,  with  witnesses  to 
the  buyer's  signature,  and  should  be  recorded. 

Idaho: 

Contracts  should  be  in  writing  and  signed  by  the 
seller,  but  need  not  be  signed  by  the  buyer.  No  wit- 
nesses are  necessary,  and  the  contract  need  not  be 
acknowledged,  proven,  filed  or  recorded.    Where  rail- 


APPENDIX  259 

road  equipment  is  sold  both  parties  must  sign,  the  buyer 
must  acknowledge  it  or  it  must  be  proved  as  deeds  are 
proved,  and  recorded. 

Illinois  : 

Conditional  sales  contracts  are  not  good  as  against 
third  persons  in  this  state  under  any  circumstances, 
but  an  order  form  of  contract  should  be  used  providing 
for  the  giving  of  a  chattel  mortgage  upon  the  property 
to  secure  the  purchase  price.  Such  mortgage  must  be 
signed  by  the  buyer  and  be  acknowledged  and  recorded. 
Where  railroad  equipment  is  sold  a  conditional  sales 
contract  may  be  used,  which  must  be  acknowledged 
by  the  buyer  and  be  recorded  or  filed,  and  is  then  good 
as  against  third  persons. 

Indiana : 

Contracts  must  be  in  writing,  signed  by  the  buyer 
but  need  not  be  signed  by  the  seller.  Witnesses  are 
not  necessary;  neither  is  it  necessary  to  acknowledge, 
prove,  record  or  file.  Sales  of  railroad  equipment  can 
be  made  on  conditional  sales  contract  if  signed  and 
acknowledged  by  the  buyer  and  recorded. 

Iowa : 

Contracts  must  be  in  writing  and  signed  by  both 
parties;  witnesses  are  not  necessary,  but  the  contract 
must  be  recorded,  and  either  party  may  acknowledge 
for  that  purpose.  Railroad  equipment  can  be  sold  on 
contract  if  acknowledged  by  the  buyer  and  recorded. 


260  APPENDIX 

Kansas : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  Witnesses  are 
not  necessary.  The  original  or  true  copy  must  be  filed 
to  be  valid  as  against  third  persons.  It  is  not  necessary 
to  prove  or  acknowledge  the  same.  Raihoad  equip- 
ment can  be  sold  on  such  contract  if  executed  by  all 
parties,  acknowledged  by  the  buyer  and  proven  as 
deeds  are  proven,  and  recorded. 

Kentucky : 

Contracts  must  be  in  writing,  signed  by  the  buyer 
and  must  be  acknowledged  by  the  buyer  or  be  proven 
by  the  oath  of  either  of  two  witnesses  who  signed  the 
contract  at  the  time  of  purchase,  and  must  be  recorded. 
Salesman  may  act  as  one  witness  if  he  does  not  sign 
on  behalf  of  the  seller.  Sales  of  railroad  equipment 
must  be  acknowledged  by  the  buyer  or  be  proven  by  a 
witness,  and  be  recorded. 

Louisiana : 

Conditional  sales  contracts  as  against  third  persons 
are  not  recognized  in  this  state.  A  lease,  with  the 
option  to  purchase,  should  be  used,  which  need  not  be 
acknowledged,  proven  or  recorded,  and  which  pro- 
tects against  all  claims  except  landlord's  lien  for  rent 
of  the  premises  where  the  property  is  located.  Rail- 
road equipment,  however,  may  be  sold  on  a  conditional 
sales  contract,  signed  by  all  parties,  acknowledged  by 


APPENDIX  261 

the  buyer,  or  proven  as  deeds  are  required  to  be  proven, 
and  be  recorded.  Such  contracts  are  good  as  against 
third  persons. 

Maine: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  Witnesses  are 
not  necessary,  neither  is  acknowledgment  or  proof 
required,  but  contract  must  be  recorded.  Railroad 
equipment  sold  under  conditional  sales  contracts  must 
be  signed  by  all  parties,  acknowledged  by  the  buyer 
or  proven  as  deeds  are  required  to  be  proven,  and  must 
be  recorded. 

Maryland : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  Witnesses  un- 
necessary, but  contract  or  memorandum  thereof  must 
be  recorded  to  be  good  as  against  third  persons  without 
notice.  No  proof  or  acknowledgment  is  required,  and 
if  the  contract  is  recorded  before  the  property  is  moved 
upon  a  landlord's  premises  it  is  good  as  against  his 
lien  for  rent.  Sales  of  railroad  equipment  must  be  on 
contracts  signed  by  all  parties,  acknowledged  by  the 
buyer,  and  recorded  in  the  same  manner  as  a  deed  to 
real  estate. 

Massachusetts : 

Contracts  must  be  in  writing  and  signed  by  all  parties 
thereto.     Witness,  proof  or  acknowledgment  are  not 


262  APPENDIX 

required,  but  if  the  property  becomes  attached  to  real 
estate  as  a  fixture  then  the  contract  should  be  recorded 
to  protect  the  seller  against  mortgagees,  purchasers  or 
grantees  of  said  real  estate ;  otherwise,  it  is  unnecessary 
to  record.  Sales  of  railroad  equipment  must  be  on  con- 
tracts, signed  by  all  parties,  acknowledged  by  the  buyer 
and  recorded. 

Michigan : 

Contracts  must  be  in  writing  and  signed  by  the  buyer 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses  or  proof  are  required,  and  it  need  not 
be  recorded  or  filed  unless  the  property  is  delivered  to 
a  retailer  for  the  purpose  of  reselling  the  same,  in  which 
case  the  contract  must  be  filed  to  be  good  as  against 
third  persons.  Railroad  equipment  contracts  must  be 
acknowledged  by  the  buyer  and  must  be  recorded. 

Minnesota: 

Contracts  must  be  in  writing,  and  must  be  signed 
by  the  buyer,  but  need  not  be  signed  by  the  seller.  No 
acknowledgment,  witnesses  or  proof  are  required,  but 
the  contract  must  be  filed.  Railway  equipment  con- 
tracts must  be  signed  and  acknowledged  by  the  buyer 
and  must  be  recorded. 

Mississippi : 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller,  and  are  good  for 
three  years  from  date  without  recording  or  filing,  ex- 


APPENDIX  263 

cept  as  against  a  landlord's  lien  for  rent  of  the  premises 
where  the  property  is  located,  but  unless  recorded  are 
not  good  as  against  creditors  of  those  transacting  busi- 
ness as  traders  or  otherwise  with  the  addition  of  the 
word,  ''Agent,"  ''Factor,"  "&  Company,"  "&  Co." 
or  like  words  and  who  fail  to  disclose  the  principal  or 
partner  by  a  sign  easily  read,  placed  conspicuously  on 
the  premises  where  the  business  is  transacted,  or  who 
transact  business  in  their  own  name  without  any  such 
addition.  In  order  to  record  the  contract  there  must 
be  one  subscribing  witness  who  takes  oath  that  he  saw 
the  buyer  execute.  The  salesman  may  be  the  witness 
unless  he  signs  on  behalf  of  the  seller.  All  contracts 
taken  in  Mississippi  should  be  witnessed  so  that  later 
they  may  be  proved  and  recorded  if  necessary.  Rail- 
way equipment  contracts  must  be  signed  and  acknowl- 
edged by  the  buyer  and  must  be  recorded. 

Missouri : 

Contracts  must  be  in  writing  and  signed  by  the  buyer 
but  need  not  be  signed  by  the  seller.  It  is  not  necessary 
to  record  the  contract,  nor  is  it  necessary  to  have  it 
witnessed,  but  it  is  better  to  file  a  copy  to  protect  the 
seller.  To  record  a  contract  it  would  be  necessary  to 
have  the  buyer  acknowledge  it  in  person  or  have  one 
subscribing  witness  prove  the  contract.  Sales  of  rail- 
way equipment  must  be  signed  by  all  parties,  acknowl- 
edged by  the  buyer  and  recorded. 


264  APPENDIX 

Montana : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses  or  other  proof  are  required,  but  the  con- 
tract should  be  filed.  Contracts  for  railway  equip- 
ment must  be  signed  by  all  parties,  acknowledged  or 
proved  the  same  as  a  deed  to  real  estate,  and  must  be 
recorded. 

Nebraska : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses  or  proof  are  necessary,  but  the  contract 
must  be  filed.  In  order  to  file  contracts  in  this  state 
the  seller  must  attach  to  the  copy  to  be  filed  an  affidavit 
containing  his  name  and  the  name  of  the  buyer,  a  de- 
scription of  the  property  and  its  value  and  also  the  full 
and  true  interest  of  the  seller  therein.  Railway  con- 
tracts must  be  signed  by  all  parties,  acknowledged  by 
the  buyer  or  proven  as  deeds  to  real  estate  are  proven, 
and  recorded. 

Nevada : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses,  proof,  filing  or  recording  are  necessary. 
Railway  equipment  contracts  must  be  signed  by  all 
parties,  acknowledged  by  the  buyer,  and  recorded. 


APPENDIX  265 

New  Hampshire : 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  witnesses  are 
necessary.  Unless  the  property  is  household  furniture, 
the  contract  must  be  recorded.  No  acknowledgment 
is  necessary  to  record  it.  All  parties,  however,  must 
make  affidavit,  setting  forth  the  nature  of  the  transac- 
tion. Railway  equipment  contracts  must  be  signed  by 
all  parties  and  acknowledged  by  the  buyer,  but  no 
affidavit  is  necessary.  Such  contracts  must  be  proven 
as  deeds  are  proven  and  must  be  recorded. 

New  Jersey: 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  It  should  be  ac- 
knowledged by  the  buyer  or  be  witnessed  by  one  who 
can  prove  the  buyer's  signature  and  then  recorded. 
The  salesman  can  act  as  witness,  unless  he  signs  on 
behalf  of  the  seller.  If  the  buyer  is  a  corporation  the 
corporate  seal  should  be  impressed  upon  the  contract. 
Railway  equipment  contracts  must  be  acknowledged 
by  the  buyer  and  be  recorded. 

New  Mexico : 

Contracts  must  be  in  writing,  signed  by  both  the 
buyer  and  the  seller,  but  it  is  not  necessary  to  have  it 
witnessed,  though  it  must  be  acknowledged  by  the 
buyer  or  the  seller  and  be  filed  or  recorded. 


266  APPENDIX 

New  York: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
and  need  not  be  acknowledged  by  either  party  nor  be 
signed  or  proven  by  a  subscribing  witness,  but  must 
be  filed.  If  the  property  is  attached  to  a  building  the 
contract  should  contain  a  description  of  the  building 
by  street  and  number.  Railway  equipment  contracts 
must  be  acknowledged  by  the  buyer  and  be  recorded. 

North  Carolina: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  One  witness  to 
the  buyer's  signature  is  necessary.  Contract  should 
be  acknowledged  by  the  buyer  or  a  subscribing  witness, 
and  must  be  registered.  The  salesman  taking  the  order 
may  act  as  a  witness,  unless  he  signs  on  behalf  of  the 
buyer.  Railway  equipment  contracts  must  be  in  writ- 
ing and  acknowledged  by  either  party  and  must  be 
recorded. 

North  Dakota: 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  The  original  or 
an  authenticated  copy  must  be  filed,  but  it  need  not 
be  acknowledged  or  proven  in  order  to  be  filed.  Ther^ 
is  some  confusion  on  the  point  of  witnesses,  and  the 
only  safe  rule  is  to  have  two  witnesses  to  the  buyer's 
signature.  Railway  equipment  contracts  must  be  in 
writing,  acknowledged  and  recorded. 


APPENDIX  267 

Ohio: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses  or  proof  are  required,  but  a  copy  of  the 
contract  must  be  filed  and  to  it  must  be  attached  an 
affidavit  of  the  seller,  stating  the  amount  of  the  claim. 
Railway  equipment  contracts  must  be  recorded  or  filed, 
but  no  acknowledgment  or  proof  is  required. 

Oklahoma : 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  A  copy  of  it  must 
be  filed  but  need  not  be  acknowledged  or  witnessed. 
Railway  equipment  contracts  must  be  in  writing,  ex- 
ecuted by  all  parties,  acknowledged  by  the  buyer  or 
proved  as  deeds  are  proved,  and  recorded. 

Oregon : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses  or  proof  are  required.  Unless  the  prop- 
erty is  attached  to  real  estate  as  a  fixture,  the  con- 
tract need  not  be  filed  or  recorded.  If  the  property  is 
attached  to  real  estate  as  a  fixture,  the  contract  in  full 
describing  the  personal  property  and  describing  the 
real  estate  must  be  filed  within  ten  days  after  the  prop- 
erty attaches  to  the  real  estate  in  order  to  be  good  as 
against  third  persons.  Railway  equipment  contracts 
must  be  acknowledged  by  the  buyer  and  be  recorded. 


268  APPENDIX 

Pennsylvania : 

Contracts  must  be  in  writing  but  should  be  in  the 
form  of  a  lease  or  bailment,  with  option  to  purchase, 
which  does  not  require  a  subscribing  witness  and  need 
not  be  acknowledged,  proved,  filed  or  recorded.  Such 
an  instrument  is  good  as  against  all  third  persons, 
excepting  possibly  a  landlord's  lien  for  rent  upon  the 
premises  where  the  property  is  located.  If  the  prop- 
erty is  attached  to  real  estate  a  conditional  sales  con- 
tract in  writing  may  be  used  and  must  be  recorded. 
Railway  equipment  contracts  must  be  in  writing,  ac- 
knowledged, and  recorded. 

Rhode  Island : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses,  proof,  filing  or  recording  are  necessary. 
Railway  equipment  contracts  must  be  in  writing,  ex- 
ecuted by  all  parties,  acknowledged  by  the  buyer, 
proven  as  deeds  are  proven,  and  recorded. 

South  Carolina: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller,  and  also  must  be 
recorded  or  filed.  Every  contract  should  have  two 
subscribing  witnesses.  If  for  less  than  SIOO.OO  con- 
tract may  be  filed  without  witnesses  proving  under 
oath.  If  over  $100.00,  before  recording  it  is  necessary 
that  one  witness  make  oath  that  he  saw  the  buyer  sign. 


APPENDIX  269 

The  salesman  may  act  as  witness,  unless  he  signs  on 
behaK  of  the  seller.  Railway  equipment  contracts 
must  be  in  writing,  signed  by  all  parties,  witnessed 
properly  as  to  buyer's  signature  and  recorded. 

South  Dakota: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment is  required,  but  contract  must  be  filed.  There  is 
some  confusion  as  to  witnesses,  and  the  safer  plan  is  to 
have  two  witnesses.  The  salesman  may  sign  as  one 
witness  unless  he  signs  on  behalf  of  the  seller.  Railway 
equipment  contracts  must  be  in  writing,  acknowledged 
and  recorded. 

Tennessee : 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  witness  is 
necessary.  It  is  also  unnecessary  to  acknowledge, 
prove,  file  or  record.  Railway  equipment  contracts 
must  be  in  writing,  acknowledged  and  recorded. 

Texas : 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  Contracts  must 
be  filed.  If  the  original  is  filed  no  witness  is  required, 
but  if  a  copy  is  filed  the  original  must  have  been  wit- 
nessed by  two  persons  or  have  been  acknowledged  by 
the  buyer.    Railway  equipment  contracts  must  be  in 


270  APPENDIX 

writing  and  must  be  recorded,  but  there  is  no  require- 
ment for  acknowledgment  or  proof. 

Utah: 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses  or  proof  are  required,  and  the  contract 
need  not  be  filed  or  recorded.  Railway  equipment  con- 
tracts must  be  in  writing,  signed  by  all  parties,  acknowl- 
edged by  the  buyer,  and  recorded. 

Vermont: 

Contracts  must  be  in  writing,  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  Witnesses  not 
required,  neither  is  it  necessary  that  it  be  acknowledged 
or  proved,  but  the  original  must  be  recorded.  Railway 
equipment  contracts  must  be  executed  by  all  parties, 
acknowledged  by  the  buyer,  proved  as  deeds  to  real 
estate  are  proved,  and  recorded. 

Virginia : 

Contracts  must  be  in  writing  and  signed  by  all  parties. 
No  witnesses  or  acknowledgment  are  necessary.  A 
memorandum  of  the  contract  must  be  recorded.  This 
memorandum  is  taken  by  the  recording  officer  from  the 
original.  Most  recording  officers  in  this  state  will  accept 
a  certified  or  sworn  copy,  but  if  the  original  is  demanded 
it  must  be  sent.  Six  essential  items  are  necessary  for 
the  clerk  to  make  the  memorandum:  (1)  Date,  (2) 
Amount,  (3)  Date  of  maturity,  (4)  Terms,  (5)  Descrip- 


APPENDIX  271 

tion,  (6)  Names  of  buyer  and  seller.  Railway  equip- 
ment contracts  must  be  in  writing,  acknowledged  by 
the  buyer  as  a  deed  to  real  estate  is  acknowledged,  and 
recorded. 

Washington : 

Contracts  must  be  in  writing,  signed  by  all  parties. 
Witnesses  are  unnecessary,  and  no  acknowledgment 
or  proof  is  required.  The  original  or  a  copy  must  be 
filed  within  ten  days  after  the  buyer  takes  possession. 
Railway  equipment  contracts  must  be  acknowledged 
by  the  buyer  as  a  deed  is  acknowledged,  and  recorded. 

West  Virginia : 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment, witnesses  or  proof  are  necessary.  A  notice  of 
reservation  of  title  must  be  recorded  and  such  notice 
may  be  signed  by  the  seller.  Railway  equipment  con- 
tracts must  be  in  writing,  properly  signed  and  acknowl- 
edged. 

Wisconsin : 

Contracts  must  be  in  writing,  signed  by  all  parties. 
If  the  property  is  household  furniture,  a  copy  must  be 
delivered  to  the  buyer  at  the  time  of  sale  and  all  pay- 
ments made  on  such  contracts  must  be  endorsed  on 
such  copy  if  the  buyer  demands  it.  No  witnesses  or 
acknowledgment  are  required.  Copies  of  all  contracts 
must  be  filed.    Railway  equipment  contracts  must  be 


272  APPENDIX 

in  writing  and  must  be  recorded,  but  need  not  be  ac- 
knowledged or  proved. 

Wyoming : 

Contracts  must  be  in  writing  and  signed  by  the  buyer, 
but  need  not  be  signed  by  the  seller.  No  acknowledg- 
ment or  witnesses  are  required.  A  copy  of  the  con- 
tract must  have  attached  to  it  an  affidavit  of  the  seller, 
stating  the  names  of  the  buyer  and  the  seller,  and  giving 
a  description  of  the  property,  with  a  statement  of  the 
interest  of  the  seller  therein,  and  must  be  recorded. 
Railway  equipment  contracts  must  be  signed  by  all 
parties,  acknowledged  by  the  buyer,  and  recorded. 


FORMS  OF  CONDITIONAL  SALES  CONTRACTS 

SHORT  FORM,  CONDITIONAL  SALE  CONTRACT 

Indianapolis,  Ind.,  Aug.  14,  1918. 
Gem  Furniture  Co., 
City. 

Please  deliver,  at  my  address  shown  below,  the  following: 
One  No.  518  Rocking  Chair, 


for  which,  delivered,  I  will  pay  you  the  sum  of  fifteen  ($15.00) 
dollars,  as  follows: 

Five  ($5.00)  dollars  cash  with  order;  five  ($5.00)  dollars,  Septem- 
ber 1,  1918,  and  five  ($5.00)  dollars  November  1,  1918, 

It  is  agreed  that  you  shall  not  relinquish  your  title  to  said  chair 
but  shall  remain  the  sole  owner  thereof  until  the  full  purchase  price 
above  stated  is  paid  to  you  in  money,  and  that,  in  case  of  default, 
you  may,  at  your  option,  remove  said  chair  without  legal  process, 
all  claims  for  damages  and  exemptions  being  hereby  waived. 

There  are  no  conditions  whatever,  not  stated  in  this  contract. 


(Signature.) 
(Address.) 


273 


274  APPENDIX 

SIMPLE  FORM  OF  CONDITIONAL  SALE 

(Address  and  Date.) 
To 


Please  ship,  as  soon  as  convenient,  as  per  shipping  directions 
below,  the  following: 


(Herein  describe  property) 

for  which,  delivered,  f .  o.  b ,1  will  pay  you  the 

sum  of dollars  ($ ) . . . . 


(Hereinabove  state  terms  of  payment) 

It  is  agreed  that  you  shall  not  relinquish  your  title  to  said 

but  shall  remain  the  sole  owner 

thereof  until  the  full  purchase  price  above  stated  is  paid  to  you  in 
money;  and  if  notes  are  given,  until  all  said  notes  are  actually  paid 
in  full.  Failure  to  pay  any  of  said  installments  or  notes  when  due 
shall  cause  any  unpaid  balance  to  become  due  and  payable  immedi- 
ately, at  your  option. 

Should  you  deem  yourself  unsafe  or  at  any  risk,  then  you  may 
remove  said  property  without  legal  processes,  and  all  claims  for 
damages  on  account  of  such  removal  are  hereby  waived;  said  prop- 
erty not  to  be  removed  by  us  from  our  place  of  business  or  residence 
until  the  purchase  price  is  paid  in  full. 

This  order  is  given  subject  to  your  approval,  and  it  is  expressly 
understood  that  there  is  no  agreement  relating  to  said  property  not 


APPENDIX  275 

herein  stated,  and  the  undersigned  agrees  to  accept  and  pay  for 
said  property  in  accordance  with  this  contract. 


(Signature.) 
(City.) 
(State.) 


Shipped  to 


PENNSYLVANIA  LEASE  FORM  OF  CONTRACT 

The  Gem  Piano  Company  of  Philadelphia,  Pennsylvania,  here- 
inafter called  the  party  of  the  first  part,  hereby  leases  unto  John 
Brown,  residing  at  1020  First  St.,  Philadelphia,  Pennsylvania, 
party  of  the  second  part,  for  the  term  of One  up- 
right Piano,  Style ,  No made  by 

on  the  following  terms : 

Party  of  the  second  part  covenants  and  agrees  to  pay  to  the  party 
of  the  first  part  at  its  place  of  business  in  said  city  of  Philadelphia, 

on  the  date  of  this  lease, dollars  and  on 

the day  of  each  and  every  month  thereafter 

dollars  in  lawful  money,  as  rental  for  said  piano. 

Upon  the  termination  of  this  lease,  the  party  of  the  second  part 
agrees  to  return  said  piano  to  the  party  of  the  first  part  in  as  good 
condition  as  when  received,  natural  wear  and  tear  excepted,  and 
upon  the  redelivery  of  said  piano  hereby  leased  the  party  of  the  sec- 
ond part  shall  have  the  option  of  purchasing  the  same  for  the  sum 
of dollars. 

The  party  of  the  second  part  agrees  not  to  remove  said  piano  out 
of  his  present  residence  nor  to  sublet  the  same,  and  agrees  to 
keep  it  in  good  condition  and  repair  as  his  own  expense  and  to  keep 

it  insured  against  loss  and  damage  by  fire  in  the  sum  of 

dollars  for  the  benefit  of  the  first  party. 


276  APPENDIX 

It  is  further  agreed  between  the  parties  hereto  that  upon  failure 
of  the  party  of  the  second  part  to  keep  or  perform  any  of  the  agree- 
ments or  covenants  by  him  to  be  kept  or  performed  or  upon  default 
of  any  monthly  rental  herein  provided  for  that  the  party  of  the  first 
part  may,  without  process  of  law,  enter  and  retake  possession  of 
said  piano  wherever  found,  and  five  days  after  each  and  every  de- 
fault in  the  payment  of  rent  herein  provided  for,  and  forthwith 
on  every  other  breach  of  covenant,  the  party  of  the  first  part  may 
enter  a  judgment  against  the  second  party  for  all  rent  due  and  un- 
paid and  the  term  of  this  lease  shall  then  terminate  and  end,  and 
for  entering  and  confessing  said  judgment  or  judgments,  with  costs 
of  suit  and  attorneys'  fees  of  $10.00  in  each  case  in  any  court,  with- 
out appeal,  writ  of  error  or  stay  of  execution,  and  with  a  waiver  of 
all  exemption  laws,  this  lease  or  a  copy  thereof  shall  be  a  sufficient 
warrant  of  anyone. 

IN  WITNESS  WHEREOF,  the  said  parties  have  signed  and 

caused  their  respective  seals  to  be  duly  affixed  hereunto,  this 

day  of ,  1918. 

(seal) 

(seal) 

Signed,  sealed  and  delivered 

in  the  presence  of 


Landlord . 


Occupation , 

Employer, 

Business  address . 
Lease  No , 


APPENDIX  277 

MACHINERY  FORM  OF  CONDITIONAL  SALE  CONTRACT 

1918. 

To 

{Name  of  Purchaser) 


(Address.) 
We  hereby  propose  to  furnish  and  deliver,  f.  o.  b.. 
the  following 


(Herein  describe  the  property) 

shipment  to  be  made  to  purchaser  via 

at on  or  about, .  . 


The  property  herein  specified  is  guaranteed  by  us  to  be  well 
made,  of  good  material,  and  in  a  workmanlike  manner;  and  upon 
evidence  of  any  defect  in  workmanship  or  material  within  one  year 
from  date  of  sliipment  thereof  this  company  will  replace  such  de- 
fective parts  free  of  charge,  f .  o.  b ,  but  this  company 

will  not  be  liable  for  repairs  or  alterations  unless  the  same  are  made 
with  our  written  consent  and  approval.  This  company  will  not  be 
liable  for  damages  nor  delaj'^s  caused  by  such  defective  material 
or  workmanship,  and  it  is  agreed  that  its  liability  under  all  guaran- 
tees is  expressly  limited  to  the  replacing  of  parts  failing  through 
defects  in  workmanship  or  material,  free  of  charge,  f.  o.  b.  its  factory, 
within  the  time  and  in  the  manner  aforesaid.  Parts  claimed  to  be 
defective  are  to  be  returned  to  us  at  our  option,  transpo ration  pre- 
paid. 

Additional  E^ipment.  The  following  equipment  is  included  in 
the  purchase  price  of  this  proposal  and  shall  be  considered  a  part 
thereof: 


We  propose  to  furnish  the  property  as  specified  herein  for  the  sum 


278  APPENDIX 

of dollars  ($ )  to  be  paid  at  the  com- 
pany's office  shown  herein,  as  follows: 

dollars  {$ )     cash    with    order, 

dollars    ($ )    upon    shipment, 

sight-draft  with  bill  of  lading  attached,  balance 


All  deferred  payments  are  to  be  evidenced  by  negotiable  notes 
payable  to  the  order  of  this  company,  dated  and  deUvered  as  of  the 
date  of  shipment  and  to  bear  interest  from  said  date  at  the  rate  of 
per  cent  per  annum. 


THIS    PROPOSAL   IS    MADE    UPON    THE    FOLLOWING    CONDITIONS: 

That  the  title  and  ownership  of  the  property  herein  specified 
shall  remain  in  this  company  until  final  payment  therefor  has  been 
made  in  full  as  above  provided,  and  in  the  event  that  notes  are 
taken  at  any  time,  representing  deferred  payments  or  any  balance 
that  may  be  due,  or  in  the  event  that  any  judgment  is  taken  on 
account  of  or  on  any  part  of  the  purchase  price,  the  title  to  such 
property  shall  not  pass  until  such  notes  so  given  or  extensions  thereof 
or  such  judgment  taken  are  fully  paid  in  money  and  satisfied.  This 
company  shall  have  the  right  to  discount  or  transfer  any  of  said 
notes,  and  the  title  or  right  of  possession  in  and  to  said  property 
shall  pass  thereby  to  the  legal  holder  of  said  notes. 

You  shall  take  all  such  legal  steps  as  may  be  required  by  the  laws 
of  your  state  for  the  preservation  of  this  company's  title  as  herein 
provided,  and  in  the  event  of  any  default  by  you  in  making  any  of 
said  payments  when  due  as  above  provided,  the  full  amount  of  the 
purchase  price  shall,  at  the  election  of  this  company,  become  im- 
mediately due  and  payable,  in  which  event  tliis  company,  or  its 
agents  or  representatives,  shall  have  the  right  to  take  possession  of 
said  property  or  any  part  thereof,  wherever  foimd,  without  process 
of  law,  and  shall  not  be  held  liable  for  such  seizure,  and  this  com- 
pany may,  at  its  election,  upon  written  notice  to  you,  deposited  in 


APPENDIX  279 

the  mails  ten  (10)  days  prior  thereto,  addressed  to  you  at  your  last 
known  address,  sell  said  property  or  any  part  thereof,  at  public 
or  private  sale,  and  at  which  sale  it  shall  be  optional  with  this  com- 
pany to  bid  for  and  purchase  tliis  property  or  any  part  thereof. 
This  company  shall  retain  so  much  of  the  proceeds  of  said  sale 
necessary  to  satisfy  the  balance  remaining  due,  together  with  costs 
of  such  removal  and  sale,  and  any  excess  shall  be  paid  to  you. 
Should  the  proceeds  of  said  sale  not  cover  the  balance  remaining  due 
this  company,  together  with  the  costs  of  removal  and  sale,  you  shall 
pay  the  deficiency  to  tliis  company  forthwith  after  such  sale.  The 
said  property  shall  be  and  remain  strictly  personal  property  and 
retain  its  character  as  such,  no  matter  whether  on  permanent  founda- 
tion or  in  what  manner  affixed  or  attached  to  any  building  or  struc- 
ture or  what  may  be  the  consequences  of  its  being  removed  from 
such  foundation,  building  or  structure  or  for  what  purpose  the 
property  may  be  used. 

That  the  receipt  of  the  property  when  delivered  to  you  or  to  your 
agents  shall  constitute  a  waiver  of  all  claims  for  damages  by  reason 
of  any  delay,  and  that  you  will  make  good  to  us  any  loss  or  damage 
to  said  property  caused  by  fire  or  otherwise  from  the  time  of  de- 
livery to  you,  as  herein  stated,  until  the  said  property  is  fully  paid 
for,  as  provided  herein. 

In  the  event  that  it  is  necessary  to  employ  an  attorney  in  the  col- 
lection of  any  moneys  due  under  this  contract,  you  agree  to  pay 
attorneys'  fees  and  all  other  expenses  incurred  in  connection  there- 
with. 

As  a  further  consideration,  you  will  pay  us  twenty  (20%)  per 
cent  of  the  purchase  price  stated  in  this  proposal,  as  agreed  hqui- 
datcd  damages  in  the  event  of  your  refusal  to  receive  said  property 
when  delivered  or  in  the  event  of  this  proposal's  being  counter- 
manded by  you  after  having  been  accepted  by  you. 

It  is  expressly  miderstood  that  this  proposal  made  in  duphcate, 
contains  all  agreements  pertaining  to  the  property  herein  specified, 
there  being  no  verbal  understanding  whatsoever,  and  when  signed 
by  the  purchaser  and  approved  by  an  executive  officer  of  this  com- 
pany it  becomes  a  contract  binding  the  parties  hereto. 

Delivery  of  all  items  in  this  proposal  is  contingent  upon  and  sub- 
ject to  strikes,  accidents,  acts  or  demands  of  the  government  in 


280  APPENDIX 

times  of  war  or  national  emergency,  and  all  other  causes  beyond  our 
control,  and  is  not  guaranteed. 

Respectfully  submitted, 
NATIONAL  MACHINERY  CO., 

By 

(Salesman  sign  here) 

The  above  proposal  is  hereby  accepted  this day  of 

,  1918. 

Signed  in  the  presence  of 


{Purchaser  sign  here) 
Approved, 
National  Machinery  Co., 

By 

Note. — This  contract  has  been  used  by  machinery  dealers  with 
a  great  deal  of  success.  It  covers  practically  every  contingency 
that  might  arise.  In  addition  to  what  is  stated  in  the  contract, 
provision  should  be  made  to  show  the  test  that  the  machinery  was 
given  before  shipment,  the  specifications  of  the  machinery  should 
be  printed  in,  and  care  should  be  taken  to  carefully  designate  who  is 
to  superintend  the  installation,  and  a  clause  should  be  inserted  that 
if  the  company  is  to  superintend  erection  or  installation,  if  the 
company's  representative  is  delayed  through  any  fault  of  the  buyer, 
the  buyer  is  to  pay  for  loss  of  time. 

Particular  attention  is  called  to  the  guarantee,  as  an  unlimited 
guarantee  frequently  makes  the  seller  liable  for  contingent  damages. 
A  mere  statement  that  the  machinery  is  guaranteed  is  not  sufficient, 
as  in  case  a  defect  should  occur, — for  instance  such  as  the  fly-wheel 
becoming  detached  from  a  moving  engine — the  contingent  damages 
might  be  large,  but  if  the  liability  of  the  seller  is  strictly  limited  to 
the  replacing  of  defective  parts  by  the  terms  of  the  contract  itself, 
no  court  or  jury  could  impose  excessive  damages,  regardless  of  the 
nature  of  the  damages  caused  by  any  defect. 

The  contract,  as  will  be  noted,  permits  the  seller  to  take  notes, 
which  agreement  does  not  pass  title,  except  in  one  or  two  states 


APPENDIX  281 

where  the  law  provides  that  the  negotiation  of  such  notes  passes 
title. 

The  title  clause  is  definite,  and  specifies  the  procedure  in  case  of 
default. 

Furthermore,  frequently  machinery  is  not  delivered  at  the  time 
expected,  but  the  clause  that  the  receipt  of  the  property  shall  con- 
stitute a  waiver  of  all  claims  for  damages  by  reason  of  any  delay 
compels  the  buyer  to  either  accept  the  machinery  when  it  is  offered 
for  dehvery  or  promptly  reject  it  and  pursue  his  remedy  for  dam- 
ages. Most  buyers  will  accept  the  property  even  though  there  has 
been  a  delay,  and  this  clause  reUeves  the  seller  from  damages  in 
that  event. 

The  contract  also  provides  a  penalty  in  case  of  cancellation,  which 
is  of  somewhat  doubtful  legal  value  but  which  nevertheless  more 
securely  binds  the  purchaser,  and  provision  is  made  for  attorneys' 
fees  in  the  event  that  attorneys  must  be  employed. 

FORM    OF    CONTRACT    USED    IN    SELLING    ENGINES 

NATIONAL  MACHINERY  CO. 

(Incorporated) 

GENERAL  ENGINE  PROPOSAL 

19... 

National  Machinery  Co.,  a  corporation  (hereinafter  designated 

as  the  Company) ,  proposes  to  furnish  and  deliver  to 

of 

(hereinafter  designated  as  the  Purchaser),  subject  to  the  terms  and 
conditions  hereinafter  set  forth,  the  following  machinery  and  ma- 
terials: 

State  State 

Quantity     H.  P. 
Here  Here. 

H.  P.  Nat.  Mach.  Co.  Type.  .Style.  .Engine. 

H.  P.  Nat.  Mach.  Co.  Type.  .Style.  .Engine. 

H.  P.  Nat.  Mach.  Co.  Type. . Style. . Engme. 


282  APPENDIX 

in  accordance  with  the  specifications  attached  hereto  and  made  a 
part  of  this  proposal,  as  follows: 

Specification  No.   1  date Specification  No.  2  date 

Specification  No.  3  date Specification  No.  4  date 

Specification  No.  5  date Specification  No.  6  date 

Delivery.    The  Company  will  deliver  the  said  machinery  and 

materials  f.  o.  b.  cars  its  factory,  ( )  about 

but  said  date  of  delivery  is  not  guaranteed  by  the 

Company. 

Horse  Power.  The  engine  specified  herein  shall  be  tested  by 
the  Company  at  its  factory,  before  shipment  and  the  Company 

guarantees  said  engine  shall  develop actual  horse  power 

at  such  test. 

Erection.  When  preparations  are  complete,  ready  for  such  erec- 
tion, and  at  the  request  of  the  Purchaser,  the  Company  shall  furnish 

a  competent  Engineer  (at  $ a  day  and  expenses)  at  the 

expense,  who  shall  superintend  the  erection  of  the  machinery 

and  do  all  work  requiring  skilled  labor.  The  Purchaser  shall  erect 
the  proper  and  necessary  foundations  and  buildings  immediately 
upon  the  arrival  of  such  machinery  and  shall  furnish  all  needed  com- 
mon labor,  cartage  and  materials  necessary  for  such  erection  and 
operation,  rendering  at  all  times  friendly  and  needed  assistance  to 
said  Engineer  to  facilitate  such  erection  and  operation. 

Guarantee  of  Duty  upon  Test.  When  properly  installed  the 
Company  guarantees  that  at  a  test  to  be  conducted  at  the  time  and 
in  the  manner  hereinafter  set  forth  the  machinery  herein  specified 
will  operate  successfully  as  follows: 


which  guarantees  are  hereinafter  designated  and  referred  to  as 
Guarantees  of  Duty. 

Test.  The  test  shall  be  rnade  only  if  requested  by  the  purchaser, 
and  such  request,  if  made,  must  be  made  inmaediately  upon  com- 
pletion of  installation  and  shall  consist  of 


APPENDIX  283 

days'  operation  thereof.  The  said  test  shall  be  conducted  at  the  ex- 
pense of  the  Purchaser,  by  the  Engineer  of  the  Company,  who  shall 
have  entire  charge  thereof.  The  Purchaser  shall  furnish  the  load 
necessary  for  such  test,  also  a  careful  and  competent  Engineer  and 
other  labor,  if  required,  also  fuel,  water,  waste,  lights  and  other 
incidentals  needed  for  a  proper  test,  rendering  at  all  times  friendly 
and  needed  assistance.  The  Engineer  of  the  Company  shall  in- 
struct Purchaser's  Engineer  in  regard  to  the  proper  management  and 
operation  of  the  machinery.  The  Engineer  of  the  Purchaser  and  all 
other  help  shall  be  under  the  direction  of  the  Engineer  of  the  Com- 
pany. During  erection  and  such  test  the  Engineer  of  the  Company 
shall  be  considered  to  be  the  agent  of  the  Purchaser,  and  his  use 
and  possession  of  such  machinery  shall  be  considered  to  be  the  use 
and  possession  of  the  Purchaser. 

If  at  the  end  of  said days'  test  the  machinery  suc- 
cessfully operates  in  accordance  with  the  said  Guarantees  of  Duty 
herein  above  set  forth,  the  Purchaser  shall  give  to  the  Engineer 
of  the  Company,  a  written  acknowledgment  that  a  successful  test 
has  been  made,  demonstrating  that  said  machinery  will  operate 
successfully  as  provided  in  said  Guarantee  of  Duty.  Should  the 
Engineer  of  the  Company  be  required  to  remain  longer  than  the 
period  of  such  test,  through  any  fault  of  the  Purchaser,  the  Pur- 
chaser shall  pay  the  extra  time  of  such  Engineer,  at  the  rate  of 
$ per  day  and  all  expenses. 

If  at  the  end  of  such  test,  or  at  such  time  as  the  Company  claims 
that  said  machinery  has  operated  as  provided  in  said  Guarantees 
of  Duty,  the  Purchaser  fails  or  refuses  to  give  such  written  ac- 
knowledgment that  a  successful  test  has  been  made,  then  the  Pur- 
chaser shall  unmediately  notify  the  Company  at  its  office  in. . . . 
,  by  registered  letter,  in  what  particulars  the  Pur- 
chaser claims  said  machinery  to  be  defective  or  deficient,  within 
said  Guarantees  of  Duty,  and  the  Company  shall  have  a  reason- 
able time  after  the  receipt  of  such  notification  from  the  Purchaser, 
to  remedy  such  defects  or  deficiencies  claimed  to  exist.  If  it  shall 
appear  to  be  beyond  the  power  of  the  Company  to  make  the  ma- 
chinery perform  according  to  said  Guarantee  of  Duty  within  a 
reasonable  time,  then  the  Company  shall  remove  the  machinery, 
at  no  expense  to  the  Purchaser,  within  a  reasonable  time,  after 


284  APPENDIX 

giving  thirty  days'  notice  to  the  Purchaser,  the  Company  having 
refunded  to  the  Purchaser  all  purchase  money  paid  thereon,  where- 
upon all  obligation  and  liability  of  either  of  the  parties  hereto  to  the 
other  shall  cease  and  determine  and  this  agreement  shall  thereby 
become  null  and  void. 

It  is  further  agreed  that  the  use  of  said  macliinery  for  ten  (10) 
days  by  the  Purchaser  after  the  time  specified  for  said  notice  of 
defects  as  above  provided,  without  giving  notice,  shall  constitute 
an  acknowledgment  that  said  machinery  has  performed  in  strict 
accordance  with  said  guarantee. 

It  is  understood  that  said  Guarantees  of  Duty  are  specifically 
limited  to  the  operation  of  said  machinery  at  a  test  conducted  by 
the  Engineer  of  the  Company  at  the  time  and  in  the  manner  above 
set  forth  and  that  if  no  test  be  requested  by  the  Purchaser  or  if 
such  test  cannot  be  j^roperly  conducted  through  any  fault  of  the 
Purchaser,  then  said  Guarantees  of  Duty  shall  be  null  and  void 
and  the  Company  not  bound  thereby. 

Guarantee  of  Material  and  Workmanship.  The  machinery 
and  materials  herein  specified  are  guaranteed  by  the  Company  to 
be  well  made  of  good  material  and  in  a  workmanlike  manner.  If 
any  parts  of  said  machinery  herein  proposed  to  be  furnished 
or  hereafter  furnished  in  compliance  with  the  provisions  of  this 
paragraph,  fail  through  defect  in  workmanship  or  material,  within 
one  year  from  the  date  of  shipment  thereof  respectively,  the  Com- 
pany shall  replace  such  defective  parts,  free  of  charge,  f.  o.  b.  cars 
its  factory,  but  the  Company  shall  not  be  liable  for  repairs  or  alter- 
ations imless  the  same  are  made  with  its  written  consent  and  ap- 
proval. The  Company  shall  not  be  liable  for  damages  or  delays 
caused  by  such  defective  material  or  workmanship  and  it  is  agreed 
that,  excepting  its  obligation  to  remove  said  macliinery  in  the  event 
of  its  inability  to  make  said  machinery  operate  at  the  test  as  herein- 
above described  according  to  said  Guarantees  of  Duty,  the  Uability 
of  the  Company  under  all  guarantees  either  express  or  impUed,  is 
specifically  limited  to  the  replacement  free  of  charge  f.  o.  b.  its 
factory  of  parts  failing  through  defect  in  workmanship  or  materials 
within  the  time  and  in  the  manner  aforesaid.  Parts  claimed  to  be 
defective  are  to  be  returned  by  the  Purchaser  to  the  Company  at 
its  option,  transportation  prepaid. 


APPENDIX  285 

Prices.    The  Company  proposes  to  furnish  said  machinery  and 

materials  specified  herein  for  tlie  sum  of 

($ )  dollars,  to  be  paid  the  Company  at  its  ofiice  in ... . 

as  follows: 

Terms,  $ cash  with  order, 

$ when  machinery  or  ma- 
terials are  ready  for  ship- 
ment. 

$ upon  shipment,  sight  draft 

with    bill    of    lading    at- 
tached. 
Balance, 


All  deferred  payments  are  to  be  evidenced  by  negotiable  notes  of 
the  Purchaser  payable  to  the  order  of  the  Company,  dated  and  de- 
livered as  of  the  date  of  shipment  and  shall  bear  interest  from  said 
date  at  the  rate  of per  cent  per  annum. 

This  proposal  is  made  upon  the  following  conditions: 

Title.  That  the  title  and  ownership  of  the  machinery  or  materials 
herein  specified  shall  remain  in  the  Company  until  final  payment 
therefor  has  been  made  in  full  as  above  provided,  and  in  event  that 
notes  are  taken  at  any  time,  representing  deferred  payments,  or 
any  balance  that  may  be  due,  or  in  the  event  that  any  judgment 
is  taken  on  account  of  all  or  any  part  of  the  purchase  price,  the  title 
to  such  machinery  or  materials  shall  not  pass  until  such  notes,  so 
given,  or  extensions  thereof,  or  such  judgment  taken,  are  fully  paid 
in  money  and  satisfied.  The  Company  shall  have  the  right  to  dis- 
count or  transfer  any  of  said  notes,  and  the  title  or  right  of  posses- 
sion in  and  to  said  machinery  or  materials  shall  pass  thereby  to  the 
legal  holder  of  such  notes. 

The  Purchaser  shall  take  all  such  legal  steps  as  may  be  required 
by  law  for  the  preservation  of  the  Company's  title  as  herein  pro- 
vided and  in  the  event  of  default  by  the  Purchaser  in  making  any 
of  said  payments  when  due  as  above  provided,  the  full  amount 
of  the  purchase  price  shall,  at  the  election  of  the  Company,  become 
immediately  due  and  payable,  in  which  event  the  Company,  or  its 
agents  or  representatives,  shall  have  the  right  to  take  possession  of 


286  APPENDIX 

said  machinery  or  materials,  wherever  found,  without  process  of 
law,  and  shall  not  be  held  liable  for  such  seizure,  and  the  '"'ompany 
may,  at  its  election,  upon  ^vritten  notice  to  the  Purchaser,  deposited 
in  the  mails  ten  (10)  days  prior  thereto,  addressed  to  the  Purchaser 
at  his  last  known  address,  sell  said  machinery  and  materials  or  any 
part  thereof,  at  public  or  private  sale  and  at  which  sale  it  shall  be 
optional  with  the  Company  to  bid  for  and  purchase  said  machinery 
or  materials  or  any  part  thereof.  The  Company  shall  retain  so 
much  of  the  proceeds  of  such  sale  necessary  to  satisfy  the  balance 
remaining  due,  together  with  the  cost  of  such  removal  and  sale, 
and  any  excess  shall  be  paid  to  the  Purchaser.  Should  the  proceeds 
of  such  sale  not  cover  the  balance  remaining  due  the  Company, 
together  with  the  cost  of  removal  and  sale,  the  Purchaser  shall  pay 
the  deficiency  to  the  Company  forthwith  after  such  sale.  The 
said  machinery  or  materials  shall  be  and  remain  strictly  personal 
property  and  retain  its  character  as  such,  no  matter  whether  on 
permanent  foundation  or  in  what  manner  affixed  or  attached  to 
any  building  or  structure,  or  what  may  be  the  consequences  of  its 
being  disturbed  on  such  foundation,  building  or  structure,  or  for 
what  purpose  the  machinery  or  materials  may  be  used.  If  the 
Company  finds  it  necessary  to  place  the  balance  of  the  purchase 
price  due  and  unpaid  in  the  hands  of  an  attorney  for  collection,  the 
Purchaser  shall  pay  in  addition  to  said  balance  remaining  unpaid, 
ten  per  cent  (10%)  thereof  for  the  cost  of  the  collection  thereof, 
whether  suit  is  filed  or  not. 

Insurance.  The  Purchaser  shall  receive  the  machinery  or  mate- 
rials herein  specified  promptly  and  pay  all  freight  or  other  charges 
thereon.  The  Purchaser  shall  promptly  on  arrival  insure  such 
machinery  or  materials  against  loss  or  damage  by  fire  in  the  amount 
remaining  unpaid  to  the  Company,  in  such  companies  satisfactory 
to  the  Company  and  will  continue  such  insurance  in  force  until  the 
amount  of  such  indebtedness  to  the  Company  is  fully  paid,  loss, 
if  any,  being  made  payable  to  the  Company  as  its  interest  may 
appear.  Said  policies  shall  be  delivered  to  the  Company  at  its 
election.  Should  the  Purchaser  fail  so  to  do,  the  Company  may  ob- 
tain such  insurance  at  the  Purchaser's  expense.  In  case  of  loss  or 
damage  by  fire,  such  loss  or  damage  shall  have  the  effect  of  immedi- 
ately assigning  said  insurance  to  the  Company,  whether  or  not 


APPENDIX  287 

taken  out  for  its  benefit.  The  Purchaser  shall  make  good  any  loss 
to  the  Company  by  reason  of  any  damage  to  said  machinery  or 
materials  caused  by  fire,  carelessness  or  other  injuries. 

Responsibility  for  Delays.  The  Company  shall  not  be  liable 
for  any  damage  due  to  delay  in  transportation  or  delay  in  shipment 
caused  by  strikes,  fires,  floods,  combination  of  labor,  or  other  causes 
beyond  its  control  and  the  receipt  of  said  machinery  or  materials 
by  the  Purchaser  shall  constitute  a  waiver  of  any  claim  for  damage 
due  to  delay.  Should  the  Purchaser  decline  to  receive  said  machin- 
ery or  materials  upon  its  arrival,  the  damages  for  delay  in  filling  or 
shipping  the  same  shall  in  no  event  exceed  in  amount  the  rental 
value  of  similar  machinery  or  materials  for  the  period  of  such  delay 
which  is  agreed  to  be  the  sole  measure  of  such  damage.  The  Pur- 
chaser shall  pay  to  the  Company  twenty  (20%)  per  cent  of  the  pur- 
chase price  stated  in  this  proposal  as  agreed  liquidated  damages, 
if  before  shipment,  the  Purchaser  countermands  this  proposal. 
After  shipment  there  can  be  no  countermand  on  the  part  of  the 
Purchaser. 

This  proposal  is  binding  when  signed  by  the  Purchaser  and  ap- 
proved by  an  executive  officer  of  the  Company.  This  proposal  is 
executed  in  duplicate  and  it  is  expressly  understood  that  it  contains 
all  of  the  agreements  between  the  parties  hereto,  pertaining  to 
said  machinery  or  materials  herein  specified  and  that  there  is  no 
verbal  understanding  whatever  between  the  parties  hereto  in  refer- 
ence thereto. 

The  Company  shall  not  be  held  responsible  for  damages  of  any 
character  arising  by  the  use  of  said  machinery  or  materials  either 
original  or  consequential,  it  being  specifically  agreed  that  the 
liability  of  the  Company  is  specifically  limited  as  hereinabove  set 
forth. 

Respectfully  submitted, 


(Salesman  National  Machinery  Co.) 


288  APPENDIX 

The  above  proposal  is  hereby  accepted  this day  of 

19... 

With  the  definite  understanding  that  there  are  no  verbal  agree- 
ments or  understandings  changing  or  modifying  it. 

Witness 

Witness 


If  Purchaser  is  a  corporation   [  Signed  by 


Approved National  Machinery  Co., 

By.. 

Routing  Instructions 

Ship  to 

Via 

Note. — The  foregoing  type  of  contract  is  on  an  entirely  different 
theory  than  the  one  preceding  it,  and  involves  an  entire  change  in 
sales  pohcy.  This  form,  quoted  above,  involves  a  definite  guarantee 
of  duty  upon  the  part  of  the  seller,  but  positively  Umits  the  seller's 
liability,  in  the  event  that  he  is  unable  to  comply  with  the  guarantee, 
to  taking  back  the  machinery  and  refunding  the  purchase  price. 
It  very  strictly  provides,  however,  that  the  purchaser  is  positively 
bound  by  an  acceptance  if  he  uses  the  machinery  for  ten  days  after 
the  time  specified  for  notice  of  defects,  and  if  defects  are  claimed 
they  must  be  stipulated  in  a  registered  communication  addressed 
to  the  company  immediately  after  the  test  provided  for  is  made  by 
the  seller's  engineers  or  immediately  after  the  time  provided  for  a 
test  even  if  none  is  conducted. 


APPENDIX 


289 


SHORT  ORDER  FORM,  CONDITIONAL  SALE  CONTRACT, 
FOR  SALESMEN 


Salesman. 


ORDER  No. 


e3 

a 
'th 


19. 


National  Machinery  &  Supply  Co.,. 

Charge  to 

Address 

Ship  to 

Via 


Purchase  Price  $ 

Payable  as  follows  $ Cash  with  order,  $ . 

Cash  upon  shipment,  Balance  $ 


290  APPENDIX 

from  date  of  shipment,  without  any  deduction  for  Freight,  Express 
or  Exchange  Charges.  Deferred  payments  to  be  evidenced  by  ne- 
gotiable notes  bearing %  interest  per  annum 

from  date.  It  is  agreed  that  title  and  ownership  of  above  described 
property  shall  remain  in  National  Machinery  &  Supply  Co.,  until 
fully  paid  for.  In  case  Purchaser  does  not  make  payment  as  agreed, 
National  Machinery  &  Supply  Co.,  may,  at  their  option,  remove 
property,  wherever  found,  without  process  of  law,  and  sell  same  after 
ten  days'  notice  to  Purchaser,  applying  proceeds  first  on  balance 
due  and  any  remaining  after  expenses  of  sale  have  been  paid,  to  be 
turned  over  to  Purchaser.  Should  the  proceeds  of  such  sale  not 
cover  the  balance  remaining  due  National  Machinery  &  Supply  Co., 
together  with  the  cost  of  removal  and  sale,  Purchaser  shall  pay  the 
deficiency  to  National  Machinery  &  Supply  Co.,  forthwith  after 
such  sale.  Purchaser  also  agrees  to  pay  National  Machinery  & 
Supply  Co.,  20%  of  the  net  amount  stated  in  this  order  as  agreed 
liquidated  damages  in  event  this  order  is  countermanded.  All 
orders  are  contingent  upon  and  subject  to  strikes,  accidents  and 
other  causes  beyond  the  control  of  National  Machinery  &  Supply 
Co.  It  is  expressly  understood  that  there  are  no  verbal  understand- 
ings pertaining  to  the  above.  This  order  is  taken  subject  to  the 
approval  of  the  local  manager  of  National  Machinery  &  Supply  Co. 

Approved 19. . .  The  order  has  been  read 

National  Machinery  &  Supply  Co.   by   the   undersigned   and 

By acknowledged  to  be  correct. 

Signed 

{Purchaser  sign  here) 

CONDITIONAL   CONTRACT   OF   SALE 

I.  Walter  Johnson,  of  Albany,  New  York,  have  this  day  received 
from  the  National  Sewing  Machine  Company,  of  New  York  City, 
New  York,  the  following  described  property:  One  National  Sewing 
Machine  No.  18768,  drop  cabinet, 

the  value  of  which  is  hereby  fixed  at  sixty  dollars  ($60.00),  under  the 
following  agreement  of  conditional  .sale: 


APPENDIX  291 

T  hereby  agree  to  pay  the  National  Sewing  Machine  Company 
the  sum  of  five  dollars  ($5.00)  cash  on  signing  this  contract  and  the 
further  sum  of  one  dollar  each  week  thereafter,  on  Saturday  of  each 
week,  at  the  First  National  Bank  in  Albany,  New  York,  until  I 
have  paid  the  full  amount  of  sixty  dollars  ($60.00). 

When  I  shall  have  paid  the  full  amount  hereinbefore  provided  for, 
I  am  to  have  title  and  o^\^lership  to  said  property,  the  said  National 
Sewing  Machine  Company  to  have  title  and  ownership  therein 
until  all  payments  have  been  made  in  full. 

I  expressly  agree  to  use  the  aforesaid  property,  during  the  life  of 
this  contract,  in  a  careful  manner;  and  I  agree  not  to  remove  said 
property  from  the  premises  I  now  occupy  without  first  obtaining 
the  written  consent  of  said  National  Sewing  Machine  Company. 

On  default  by  me  in  any  payment,  covenant  or  agreement  herein 
provided  for,  the  National  Sewing  Machine  Company  may,  with- 
out notice  to  me,  enter  my  premises  where  the  aforesaid  property 
is  located,  take  immediate  and  full  possession  thereof,  and  after 
holding  the  same  in  any  manner  for  thirty  (30)  days,  all  my  rights 
therein  or  to  the  possession  thereof  or  to  payments  made  thereon 
shall  cease  absolutel}^  without  notice  of  any  subsequent  private 
or  public  sale;  and  I  hereby  waive  all  claim  for  damages  or  otherwise 
against  said  National  Sewing  Machine  Company  on  account  of  any 
removal  or  attempted  removal  of  aforesaid  property. 

I  hereby  agree  to  pay  any  and  all  charges,  expenses  and  attorneys' 
or  collectors'  fees  incurred  in  taking  possession  of  the  aforesaid 
property  or  in  collecting  any  balance  due  from  me  hereunder. 

In  Witness  Whereof,  I  have  hereunto  subscribed  my  name  to 

this  agreement  in  duplicate,  on  this day  of , 

1918,  one  copy  of  wliich  was  delivered  to  and  retained  by  me. 


{Purchaser). 
Accepted : 
National  Sewing  Machine  Co., 
Witnesses: 

By 


INDEX 

(■^^  Page 

Adjustment  Bureaus 145 

Application  for  Extension,  form  of 59 

Arbitration,  commercial 141 

Assignment  of  open  accounts 131 

(B) 

Bankruptcy 152 

Banks,  form  of  inquiry  to 41 

Blank  check,  form  of 136 

Blank  check,  use  of 135 

Bureaus  of  Adjustment 145 

Bankruptcy,  U.  S.  Law 175 

(a) 

Accounts  and  papers  of  Trustees 226 

Acts  of  bankruptcy 187 

Appeals  and  writs  of  error 209 

Appointment  of  Trustees 220 

Appointment,  removal  and  districts  of  Referees.  ...  214 

Arbitration  of  controversies 210 

(b) 

Bankruptcy,  definition  of 179 

Bonds  of  Referees 226 

Bonds  of  Trustees 226 

(c) 

Claims,  proof  and  allowance  of 233 

Co-debtors  of  bankrupts 200 

Compensation  of  clerks 229 

293 


294  INDEX 

Page 

Compensation  of  Marshals 223 

Compensation  of  Receivers 223 

Compensation  of  Trustees 223 

Compensation  of  Referee 218 

Compositions,  when  confirmed 196 

Compositions,  when  set  aside 198 

Compromises 211 

Computation  of  time 213 

Contempts  before  Referee 218 

Courts  of  Bankruptcy,  creation  of 183 

Creation  of  Two  Offices 214 

(d) 

Death  or  removal  of  Trustee 221 

Death  or  insanity  of  bankrupts 194 

Debtors  not  affected  by  discharge 200 

Debts  which  may  be  proved 241 

Definitions 179 

Depositories  of  money 241 

Designation  of  newspapers 211 

Discharges,  when  granted 198 

Discharges,  when  revoked 200 

Dividends,  declaration  of 244 

Dividends,  payment  of 245 

Dividends,  unclaimed 246 

Duties  of  Attorney  General 230 

Duties  of  bankrupts 192 

Duties  of  clerks 228 

Duties  of  Referee 216 

Duties  of  Trustee 221 

(e) 

Effect  on  partnership 190 

Evidence 205 

Exemption  of  bankrupts 192 

Expenses  of  administering  estates 241 

Extradition  of  bankrupts 195 


INDEX  295 

(J)  Page 

Jurisdiction  of  Appellate  Courts 208 

Jurisdiction  of  Bankruptcy  Courts 184 

Jurisdiction  of  Referee 215 

Jurisdiction  of  U.  S.  and  State  Courts 207 

Jury  Trials 203 

(1) 

Liens 246 

(m) 

Meaning  of  words  and  phrases 179 

Meetings  of  creditors 231 

(n) 

Notice  to  creditors 236 

Number  of  Referees 215 

(o) 

Oaths,  affirmation 204 

Oaths  of  Office  of  Referee 215 

Offenses 211 

(P) 

Possession  of  property 250 

Preferred  creditors 239 

Process,  Pleadings  and  Adjudications 202 

Protection  and  detention  of  bankrupts 194 

(q) 

Qualifications  of  Referees 214 

Qualifications  of  Trustees 221 

(r) 

Records  of  Referees 219 

Referee's  absence  or  disability 220 


296  INDEX 

Page 

Reference  of  cases  after  adjudication 207 

Rules,  forms  and  orders 213 

(8) 

Set-offs  and  counterclaims 249 

Statistics  of  bankruptcy  proceedings 230 

Suits  by  and  against  bankrupts 196 

(t) 

Time  of  effect  of  act 254 

Title  to  property 251 

Transfer  of  cases 213 

(V) 

Voters  at  meetings  of  creditors 232 

(w) 

Who  may  become  bankrupts 190 

Who  may  file  and  dismiss  petitions 237 

(C) 

Checks  on  blank  form 136 

Collateral  note,  form  of 128 

Collection  Agencies 148 

Collection  Agency,  organizing  your  own 164 

Collectors,  function  of 107 

Commercial  Arbitration 141 

Compiling  information,  method  of 46 

Conditional  Sales  Contracts 82 

Conditional  Sales  Contracts,  general  exceptions  to  validity  of  83 

Conditional  Sales  Contracts,  (Engine  form) 281 

Conditional  Sales  Contracts,  (Machinery  form) 277 

Conditional  Sales  Contracts,  (Salesman  short  order  form) .  .  .  289 

Conditional  Sales  Contracts,  (Sewing  Machines) 290 

Conditional  Sales  Contracts,  (Short  form) 273 


INDEX  297 

Page 

Conditional  Sales  Contracts,  (Simple  form) 274 

Conditional  Sales  Contracts,  (Pennsylvania  Lease  form) 275 

Contracts,  Conditional  Sales 82 

Converting  doubtful  orders 66 

Co-operation 52 

Creating  offsets 138 

Credit  Statement 40-41 

Credit  System 3 

Credits — fixing  limits 47 

Credits — laws  relating  to 98 

Crop  reports 102 

Conditional  Sales  Contracts — Requirements  of  States: 

Alabama 255 

Arizona 255 

Arkansas 256 

California 256 

Colorado 256 

Connecticut 256 

Delaware 257 

District  of  Columbia 257 

Florida 257 

Georgia 258 

Idaho 258 

Illinois 259 

Indiana 259 

Iowa 259 

Kansas 260 

Kentucky 260 

Louisiana 260 

Maine 261 

Maryland 261 

Massachusetts 261 

Michigan 262 

Minnesota 262 

Mississippi 262 

Missouri 263 


298  INDEX 

Page 

Montana 264 

Nebraska 264 

Nevada 264 

New  Hampshire 265 

New  Jersey 265 

New  Mexico 265 

New  York 266 

North  Carolina 266 

North  Dakota 266 

Ohio 267 

Oklahoma 267 

Oregon 267 

Pennsylvania 268 

Rhode  Island 268 

South  Carolina 268 

South  Dakota 269 

Tennessee 269 

Texas 269 

Utah 270 

Vermont 270 

Virginia 270 

Washington 271 

West  Virginia 271 

Wisconsin 271 

Wyoming 272 

(D) 

Debtors,  tracing  lost 139 

Declined  orders,  record  of 47 

Diplomacy 52 

Doubtful  orders,  converting 66 

(E) 

Elements  of  preferences 160 

Extension,  form  of  application  for 59 

Engine  form.  Conditional  Sales  Contract 281 


INDEX  299 

(F)  Page 

Farmers,  report  on  from  salesmen 28 

Fixing  credit  limits 47 

Follow  up  system  collections 114 

Form  of  application  for  extension  of  payment 59 

Form  of  blank  check 136 

Form  of  collateral  note 128 

Form  of  conditional  sales  contract  (Engines) 281 

Form  of  conditional  sales  contract  (Machinery) 277 

Form  of  conditional  sales  contract  (Penn.  Lease  form) 275 

Form  of  conditional  sales  contract  (Sewing  Machines) 291 

Form  of  conditional  sales  contract  (Short) 273 

Form  of  conditional  sales  contract  (Shortorders,salesmanform)  289 

Form  of  conditional  sales  contract  (Simple) 274 

Form  of  guarantee  (before  shipment) 70 

Form  of  guarantee  (on  past  due  accounts) 73 

Form  of  individual  statements 40-41 

Form  of  inquiry  to  banks 41 

Form  of  inquiry  to  other  merchants 42 

Form  of  report  on  farmers  (Salesman) 28 

Form  of  report  on  manufacturers  (Salesman) 27 

Form  of  report  on  merchants  (Salesman) 20 

Form  of  report  on  mining  companies  (Salesman) 36 

Form  of  report  on  oil  producers  (Salesman) 31 

Forms  of  mercantile  credit 4 

Form  of  promissory  note 125 

Functions  of  collectors 107 

Functions  of  credit  man 12 

Fundamental  principles  of  credit 7 

(G) 

General  knowledge  of  law 97 

Guarantee  form,  before  shipment 70 

Guarantee  form,  on  past  due  accounts 73 

(I) 

Implied  warranties 100 

Incorporating  your  own  collection  agency 165 


300  INDEX 

Page 

Indiana  form  of  incorporation  (collection  agency) 167 

Individual  statement — form  of 40-41 

Information — method  of  compiling 46 

Inquiry  blank  to  banks 41 

Inquiry  blank  form  to  other  merchants 42 

(K) 

Knowledge  of  law 97 

(L) 

Law,  general  knowledge  of 97 

Laws  relating  to  credits 98 

Lost  debtors,  tracing 139 

(M) 

Machinery,  form  of  conditional  sales  contract 277 

Manufacturers,  report  on  from  salesman 27 

Merchants,  report  on  from  salesman 20 

Merchants,  form  of  inquiry  to 42 

Method  of  compiling  information 46 

Mining  companies,  report  on  from  salesman 36 

(N) 

Names  for  your  own  collection  agency 168 

New  York  form  of  incorporation  of  collection  agencies 165 

(0) 

Offsets,  creating 138 

Oil  Producers,  report  on  from  salesman 31 

Open  accounts,  form  of  assignment  of 131 

(P) 

Payment,  form  of  guarantee  before  shipment 70 

Payment,  form  of  guarantee  open  account 73 

Pennsylvania  Lease  form,  conditional  sales  contract 275 

Preferences,  elements  of 160 


INDEX  301 

Page 

Preferences  in  bankruptcy 158 

Promissory  note,  collateral  form 128 

Promissory  note,  form  of 125 

Property  statement — individual  form 40-41 

Protest,  waiver  of 125 

(R) 

Reading  financial  statement 75 

Record  of  declined  orders 47 

Report  on  farmers,  from  salesman 28 

Report  on  manufacturers,  from  salesman 27 

Report  on  merchants,  from  salesman 20 

Report  on  mining  companies,  from  salesman 36 

Report  on  oil  producers,  from  salesman 31 

Reports — crop 102 

Resourceful  methods 121 

(S) 

Sales  contracts,  conditional 82 

Salesman's  report  form — farmers 28 

Salesman's  report  form — manufacturers 27 

Salesman's  report  form — merchants 20 

Salesman's  report  form — mining  companies 36 

Salesman's  report  form — oil  producers 31 

Selecting  a  Trustee  in  bankruptcy 157 

Sewing  Machine  form — conditional  sales  contract 290 

Short  form,  conditional  sales  contract 273 

Short  form,  conditional  sales  contract  (Salesman's  order  blank)  289 

Simple  form,  conditional  sales  contract 274 

Source  of  information — direct 19 

Statement — individual  form 40-41 

(T) 

Tracing  lost  debtors 139 

Trade  acceptances 89 

Trustee  in  bankruptcy — selecting 157 


302  INDEX 

Page 
(U) 
Use  of  blank  checks 135 

(W) 

Waiver  of  protest 126 

Warranties,  Implied 100 

(Y) 

Your  own  collection  agency — organizing l64 

Your  own  collection  agency — incorporating 165 

Your  own  collection  agency — naming 168 


Printed  in  the  United  States  of  America 


'T^HE  following  pages  contain  advertisements  of  a 
few  of  the  Macmillan  books  on  kindred  subjects 


A  NEW  IDEA  IN  INDUSTRY 

The  Shop  Committee 

A  HAND-BOOK  FOR  EMPLOYERS  AND  EMPLOYEES 

By  WILLIAM  LEAVITT  STODDARD,  A.B.,  A.M., 

Harvard 

Administrator  for  the  National  War  Labor  Board, 

1918-1919 

Cloth,  i2mo.  $1.25 
The  Shop  Committee  is  a  new  thing  in  industry.  Here  is 
a  clear  statement  of  the  essential  principles  and  facts  of  the 
Shop  Committee  System,  what  it  is  and  how  it  works.  Every 
large  employer  will  be  vitally  interested  in  this  new  indus- 
trial movement,  described  for  the  first  time  in  Mr.  Stod- 
dard's book. 

Table  of  Contents 

CHAPTER 

I — The  Early  Beginnings :  History  of  the  shop  committee 
movement  in  this  country  and  Great  Britain  with  par- 
ticular reference  to  the  developments  since  the  war 
and  shop  committees  as  a  reconstruction  measure. 
n — The  War  Labor  Board  Plan:  Development  of  shop 
committees  by  the  National  War  Labor  Board,  de- 
scribing particularly  the  Pittsfield,  Mass.,  plan  (Gen- 
eral Electric  Co.). 

HI — General  Principles :  An  analysis  of  the  underlying 
principles  of  collective  bargaining  through  shop  com- 
mittees. 

IV — The  Basis  of  Representation:  Discussion  in  detail 
and  with  practical  illustrations  of  the  districting  or 
dividing  of  a  plant  into  shops,  districts,  and  other  units 
of  self-government.  Shows  common  errors  into  which 
employers  and  employees  fall. 
V — The  Lynn  Plan:  Shop  Committee  Scheme  of  the 
Lynn,  Mass.,  Plant.     (General  Electric  Co.). 

VI — Three  Characteristic  Plans :  Describes  plan  installed 
in  Pittsfield  Machine  and  Tool  Co.,  Pittsfield,  Mass. 
Also  plan  at  Bridgeport,  Conn.,  and  Philadelphia 
(Rapid  Transit  Co.). 
VII — Election  Machinery :  Similar  to  Chapter  IV,  a  prac- 
tical, detailed  discussion  of  how  to  hold  elections. 
Vni— Procedure;   Similar  to  TV  and   VII. 

IX — Shop  Committees  in  Action :  Stories  and  actual  inci- 
dents related. 
X — The  Shop  Committee  and  the  Union :  Important  dis- 
cussion of  this  question  with  particular  reference  to 
whether  the  formation  of  shop  committees  promotes 
unions  or  not. 


THE  MACMILLAN  COMPANY 

Publishers     64-66  Fifth  Avenue     New  York 


JULIUS  HENRY  COHEN'S  NEW  BOOK 

An  American  Labor  Policy 

Cloth,  12mo,  $1.00 

Mr.  Julius  Henry  Cohen,  whose  previous  work, 
"Law  and  Order  in  Industry"  received  much  favorable 
comment,  gives  in  this  new  volume  a  compact  and 
well-defined  presentation  of  a  definite  Labor  Policy. 

Law  and  Order  in  Industry 

By  JULIUS  HENRY  COHEN 

Cloth,  12mo,  $1.50 

A  lawyer  who  knows  the  facts  of  the  case  from  inti- 
mate knowledge  gives  in  this  book  a  comprehensive 
story  of  the  ''Protocol"  experiences  in  the  cloak  and 
suit  industry  of  New  York.  He  describes  vividly  the 
processes  and  results  of  collective  dealing  between  a 
trades  union  and  an  employers'  association  covering  a 
period  of  five  years.  The  solution  of  the  apparently 
baffling  problems  furnishes  lessons  of  great  immediate 
and  future  import  to  all  employers  of  labor,  trades 
unionists,  social  reformers  and  students  of  political 
science  and  economics. 

''The  book  is  a  distinct  contribution  to  the  science  of 
social  relations  and  as  such  should  have  a  wide  reading 
both  here  and  abroad." — The  Independent. 

"His  book  is  a  sound  and  reliable  study  of  a  small, 
but   significant,   phase  of  a  world-wide  movement." 

— Boston  Daily  Advertiser. 


THE    MACMILLAN    COMPANY 

Publishers         64-66  Fifth  Avenue         New  York 


History  of  Labor  in  the  United  States 

By  JOHN  R.  COMMONS 

Professor    of    Political    Economy,    University    of    Wisconsin, 

President  American   Economic  Association. 

With  collaborators 

In  two  Vols.  8°,  $6.50 
"The    fullest    and    most    careful    history    of    labor    in    the 
United  States  that  has  yet  appeared." —  The  New  York  Eve- 
ning Post. 

"  It  will  doubtless  be  generally  accepted  as  the  standard 
history  of  American  labor." —  The  A  ew  York-  Tribune. 

"  A  monumental  study  .  .  .  this  probably  is  the  final  history 
of  labor  in  our  country  during  the  centuries  which  imme- 
diately precede  our  own   times." —  The  New   York   Tunes. 

Labor  and  Administration 

By  JOHN  R.  COMMONS 

Cloth,  i2mo,  $1.60 
"  Straightforward    and    fearless    examinations    of    fact." — 

Boston  Evening  Transcript. 

"There  is  not  a  chapter  which  does  not  contain  information 

which  is  practical  and  timely.'' — San  Francisco  Chronicle. 
"  Each  chapter  is  a  book  in  itself  worthy  of  careful  perusal. 

.  .  .  Written    in    his    unusual    vivid    and    interesting    style." — 

Post  Dispatch,  St.  Louis. 

An  Introduction  to  the  Study 
of  Organized  Labor  in  America 

By  GEORGE  GORHAM  GROAT 

Professor  of  Economics  in  the  University  of  Vermont 

$j.go 

"  Those  interested  in  the  study  of  the  labor  movement  in 

this    country    will    find    Professor    Groat's    book    exceedingly 

helpful  —  a   singularly   fair  presentation   of   labor's   problem." 

—  San  Francisco  Bulleti>i. 

"His  volume  is  admirably  adapted  to  giving  the  student  a 
conception  of  the  swiftly  changing  currents  in  the  field  of 
organized  labor." — Nezu  York  Evening  Post. 


THE  MACMILLAN  COMPANY 

Publishers      64-66  Fifth  Avenue      New  York 


The  Labor  Market 

By  don  D.  LESCOHIER 

Cloth,  12° 

The  employment  problem  analyzed  as  a  market  problem, 
including  a  careful  study  of  the  factors  which  influence  sup- 
ply and  demand  of  labor  in  normal  times  and  the  effect  of 
war  upon  the  labor  market. 


Workmen's  Compensation 


By  J.  E.  RHODES,  2nd 

Cloth,  8vo,  $1.50 

A  history  of  the  Workmen's  Compensation  movement  in 
this  country,  and  an  outline  of  the  principles  on  which  the 
system  is  based. 

War  Time  Control  of  Industry 

By  HOWARD  L.  GRAY 

Cloth,  12*,  $i.7S 

A  review  of  England's  problem  of  government  control 
during  the  war  is  particularly  significant  in  the  light  of  the 
present  condition  in  our  own  country. 


THE  MACMILLAN  COMPANY 

Publishers      64-66  Fifth  Avenue      New  York 


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